text:
    The People of the State of Illinois ex rel. Oscar Nelson, Auditor of Public Accounts, Complainant Below, v. Stony Island State Savings Bank, Defendant Below. In re Intervening Petition of Edwin O. Kuhn, Appellee, v. Irwin T. Gilruth, Receiver of Stony Island State Savings Bank, Appellant.
    Gen. No. 36,454.
    Opinion filed November 21, 1933.
    Kirkland, Fleming, Green & Martin, for appellant; Adrian L. Hoover, Dudley F. Jessopp and Eugene Swigart, of counsel.

      Harry A. Sewell and Bramhall & Novotny, for appellee.
   Mr. Presiding Justice Sullivan

delivered the opinion of the court.

This appeal by Irwin T. GHlruth, receiver for the Stony Island State Savings Bank, seeks to reverse an order entered.by the superior court upon the intervening petition of Edwin C. Kuhn, finding petitioner’s claim against the bank to be preferred and directing the receiver to pay same forthwith.

The intervening petition was filed in a proceeding instituted by the auditor of public accounts of the State of Illinois (hereinafter referred to as the state auditor) requesting the court to confirm the appointment of a receiver theretofore made by him for the purpose of liquidating the affairs of the Stony Island State Savings Bank (hereinafter referred to as the bank). No question arises on the pleadings.

The stipulated facts are that, March 24, 1931, petitioner presented to the bank a check payable to himself for $778.58, drawn on the treasury of the United.' States, representing a loan on his adjusted service compensation certificate, issued to him in accordance with the provisions of the World War Adjusted Compensation Act; that the bank paid to petitioner $278.58 in cash and at his request credited the balance to a savings account then and there opened by petitioner; that a savings account ledger card was signed by petitioner and a savings account pass book issued to him; that the petitioner withdrew $100 from the account April 27, 1931, and that a balance of $400 remained on deposit in the account to his credit until. the bank closed June 9, 1931; that Gfilruth was appointed receiver of the bank by the state auditor July 10, 1931, and his appointment was confirmed by the superior court July 22, 1931.

The receiver contends that petitioner is an ordinary general creditor of the bank to the amount of his deposit, entitled to share ratably with other general-creditors in the liquidation of its assets, that no claim for priority may be allowed by reason of the fact that the source of the money deposited was a loan from the United States government upon an adjusted service compensation certificate issued pursuant to Title 38, ch. 11 of the United States Code Annotated, or by reason of any exemption under section 618 of that chapter, providing that the proceeds of such loans “shall not be subject to attachment, levy or seizure under any legal or equitable process.”

Petitioner’s theory is that he never received that portion of the proceeds of the loan on his adjusted service compensation certificate, represented by the $400 remaining on deposit in his savings account in the bank, as contemplated by Congress, which intended that the proceeds of such loans should inure wholly and solely to the benefit of the veteran and his dependents", but that the bank received and retained that amount of the proceeds of the loan and that the action of the state auditor in taking control of the bank constituted a seizure under legal or equitable process; and that the receiver actually has possession of the proceeds of petitioner’s loan without lawful right thereto and is holding the same as trustee for the sole use and benefit of petitioner. Petitioner also contends that the $400 of the proceeds of the loan on deposit in the bank, not having reached him and not having been used by him or for his benefit, still remained the money of the United States government and entitled him to preference against the receivership estate under sec. 3466, U. S. Revised Statutes (3 USCA, p. 191).-

Petitioner’s last contention may be readily disposed of. Sec. 3466, U. S. Revised Statutes (3 USCA, p. 191) provides as follows:

“Whenever any person indebted to the United States is insolvent, or whenever the estate of any deceased debtor in the hands of executors or administrators is insufficient to pay all of the debts due from the deceased the debts due the United States shall be first satisfied and the priority hereby established shall stand as well to cases in which a debtor not having sufficient property to pay all his debts makes a voluntary assignment thereof, or in which the estate and effects of an absconding, concealed or absent debtor are attached by process of law and as to cases in which an act of bankruptcy is committed. ’ ’

The authorities of various States have been in conflict as to what constituted government funds within the meaning of sec. 3466, supra, in order to warrant priority to them in the distribution of the assets of insolvent banks or estates. State ex rel. Sorensen v. Security Bank of Creighton, 121 Neb. 521, 237 N. W. 620, where money payable under a war risk insurance policy had been transmitted by check drawn on the United States treasury to the administratrix of the estate of the insured, a deceased soldier, and deposited by her in a bank that subsequently became insolvent; State ex rel. Spillman v. First State Bank of Pawnee City, 121 Neb. 515, 237 N. W. 623, where war risk insurance payments had been made by the United States to the guardian of an incompetent soldier and deposited by him in a bank thereafter closed for insolvency; and People ex rel. Oscar Nelson, Auditor of Public Accounts of the State of Illinois v. John B. Colgrove & Company State Bank, 267 Ill. App. 317, where the guardians of minor children (in one instance the children of a permanently and totally disabled veteran of the World War, and, in the other, a minor brother of a soldier who died in the service) had received payments of money from the United States under the terms of the World War Veteran’s Act for the use and benefit of their wards, and deposited same in a bank that afterward became insolvent, all held that funds deposited by the guardian of a veteran or his dependents, or the administrator of a veteran’s estate, which represented proceeds of war risk insurance policies, disability payments or other governmental benefits provided for former soldiers and their dependents, and which had not reached the hands of the ultimate beneficiary or beneficiaries, remained government funds until their distribution and allowed them preference upon claims against the estates of the insolvent banks involved on the theory that the guardian or administrator was the agent of the United States government and not the agent of the veteran or his estate. These cases also held that the guardian or administrator was “a mere conduit” through which the funds were transmitted and applied for the benefit of the veteran or his estate, and that until actual transmission of the funds to the beneficiary took place or until actual application for the benefit of the veteran or his dependents was made, the moneys remained government funds.

In the instant case we have no guardian, administrator, conservator or executor receiving government funds for the benefit of a veteran or his estate, but a direct transmission to the veteran himself of a check drawn on the United States treasury and payable to the veteran which represented a loan made by the government to the petitioner on his adjusted service compensation certificate. No case has been cited, and we can find none, that holds that after the government has directly transmitted to a veteran its check for the amount of such a loan, there was a reservation on the part of the government of any interest in the money loaned that would authorize the allowance of a claim to priority on the ground of ownership of the fund by the government.

Stating as its reason for granting a writ of certiorari that the question had not theretofore been considered by it and that the decisions of the State courts were in conflict, the Supreme Court of the United States in its opinion on a writ of certiorari to the Court of Appeals of the Commonwealth of Kentucky, in a cause entitled Letcher Spicer by Sam Spicer, Guardian and Committee, Petitioner v. J. Bryan Smith, Special Deputy Banking Commissioner and Liquidating Agent of Hargis Bank and Truest Company, published April 1, 1933, in advance sheet, vol. 53, No. 11, p. 415, Supreme Court Reporter, held that payment of war risk insurance and disability compensation to the guardian of a veteran suffering from permanent mental incompetency, vested title in the ward and discharged the obligation of the United States, and that the deposit of funds so remitted did not belong to the United States and was not entitled to priority on that ground.

The facts as disclosed by the opinion were that the petitioner was a United States soldier in the World War who had suffered permanent mental incompetency while in the service and became entitled to receive from the United States war risk insurance and disability compensation; that September 19, 1919, the county court of Breathitt county, Kentucky, appointed a guardian for him; that the United States paid to the guardian the instalments due his veteran ward and he deposited them in the Hargis Bank and Trust Company; that it became insolvent and on February 5, 1930, its assets were taken over by the special deputy banking commissioner; that the guardian had on deposit $6,070'.80 derived from payments made by the United States; that the assets of the bank were not sufficient to pay more than half the total owing to depositors; that the guardian claimed priority under sec. 3466 of the United States Revised Statutes, supra, and demanded payment in full; that the deputy banking commissioner held that petitioner was only entitled to share ratably with other depositors and refused to pay the claim as one entitled to priority. After stating the facts the court held in Spicer v. Smith, supra:

“Petitioner relies upon the clause of sec. 3466 declaring that whenever any person indebted to the United States is insolvent the debts due to the United States shall first be satisfied. He asserts that,, under Acts of Congress . . . the war risk insurance and disability compensation paid to a guardian of an incompetent veteran remains the money of the United States so long as it is subject to his control and suggests that the guardian is a mere instrumentality of the United States for the disbursement of such money for the benefit of the veteran. And he maintains that the deposit here involved is money of the United States and that the bank is indebted to it therefor.

“The guardian, appointed by the county court, was by the laws of the State given the custody and control of the personal estate of his ward and was authorized to collect and receive the money in question. Ky. Stats., sec. 2030. And unquestionably payment to the guardian vested title in the ward and operated to discharge the obligation of the United States in respect of such installments. Taylor v. Bemiss, 110 U. S. 42, 45; Lamar v. Micou, 112 U. S. 452, 472; Maclay v. Equitable Life Assurance Society, 152 U. S. 499, 503; Martin v. First Nat. Bank of Bush City, 51 F. (2d) 840, 844; In re Estate of Stude, 179 Ia. 785, 788; State ex rel. v. Shawnee County Com’rs, 132 Kan. 233, 243, certiorari denied 283 U. S. 855. Schouler, Dom. Rel., 6th ed. sec. 892.

“The provisions for exemption, nonassignability and suspension of payments plainly imply the passage of title from the United States to the veteran. . . .

“It results that the deposit in question does not belong to the United States and, as indebtedness to it is essential to priority, the guardian’s claim under that section is without merit. . . . ”

This decision effectually disposes of petitioner’s contention under sec. 3466, and not only conclusively precludes the allowance of a preferred claim on the ground of title or interest of the United States in the fund in question, but expressly overrules the doctrine pronounced in the line of cases holding that the United States reserved such ownership, title or interest in payments transmitted to guardians, administrators or conservators of veterans, their dependents, or estates, as would entitle them to priority under this section.

There remains but one question for our determination: Was the assumption of control of the assets of the insolvent bank by the receiver designated by the state auditor, a seizure under any legal or equitable process of the proceeds of a loan on an adjusted service certificate, within the comprehension of sec. 618, ch. 11, Title 38, U. S. Code Annotated, which provides as follows:

“No sum payable under this chapter to a veteran or his dependents, or to his estate, or to any beneficiary named under Part 5 of this chapter, no adjusted service certificate, and no proceeds of any loan made on such certificate, shall be subject to attachment, levy, or seizure .under any legal or equitable process, or to National or State taxation.”

The receiver insists that this section of the United States statutes contains no justification for a claim to priority, based on the deposit in a bank since become insolvent, of part of the proceeds of the veteran’s loan on his adjusted compensation certificate, and that such deposit simply creates the relation of debtor and creditor. Since the adoption of the Constitution of the United States our government has made provision through pensions and the payment of other benefits for those who rendered civil or military service to their country and has zealously guarded the disposition of such payments. In the beginning laws were enacted to protect such funds until they reached the hands of the beneficiary and in course of time, even after they had reached their destination, a mantle of protection was thrown around them against the encroachment of creditors, whether such funds continued in the beneficiary’s possession in their original form or were in the possession of others for his use and benefit. This policy of the Congress of the United States is aptly stated in 21 R. C. L. 247, sec. 13:

‘ ‘ Throughout the whole period since the constitution was adopted it has been the policy of Congress to enact such regulations as will secure to the beneficiaries of the pensions granted the exclusive use and benefit of the money appropriated and paid for that purpose. With that view, sales, pledges, mortgages, assignments and every other kind of conveyance have been prohibited. . . . This power of Congress to enact such protective measures cannot well be questioned, for if it may grant pensions it is difficult to see why it may not pass laws to protect the fund appropriated for such a beneficiary of the government, certainly until it reached his hands. And power to protect the fund from misappropriation, fraud and unauthorized conversion to the use of another, and to secure its safe and unimpaired transmission to the beneficiary, has been claimed and exercised through the whole period since Congress, under the constitution, commenced to grant pensions.”

An exhaustive analysis of the cases cited and all other cases appertaining to the question that we have been able to discover after diligent search, and an examination of all sections of statutes of similar import to sec. 618, supra, confirms our opinion that the protection sought to be afforded is against creditors of beneficiaries of United States funds, whether in the form, of pensions, loans on adjusted service certificates, disability payments or payments under war risk insurance policies, and against those who would through misappropriation, fraud, or unauthorized conversion, seek to deprive the war veteran or his dependents of payments made under any of those governmental benefits.

There are some authorities to the contrary which we will discuss later, but we feel impelled to hold that in taking possession of the assets of this insolvent bank the state auditor’s receiver did not make such seizure as was contemplated under the statute; that he did not seize petitioner’s property; that the $400 on deposit in the bank ceased to be petitioner’s property from the moment of its deposit; that thereafter it was the property of the bank with the resultant relationship between the bank and the petitioner of debtor and creditor, the bank being the debtor, and the petitioner the creditor, and that the deposit was not in any sense seized to satisfy the demand of any creditor of petitioner.

The check drawn upon the United States treasury for the amount of this loan was delivered directly to petitioner. It was within, his power to secure the entire proceeds of same at the time he presented it to the bank. The disposition of such proceeds was entirely within his control. It surely cannot be contended with any weight of authority that, if he had made improvident investments in stocks, bonds, real- or personal property, upon the decline in their value for any reason, he could have legally or equitably insisted on the return of his money because it happened to represent proceeds of a loan on an adjusted service certificate. It is idle to contend that the proceeds of petitioner’s loan to the extent of $400, which remained on deposit with the bank, never reached the veteran’s hands, and that that should be a determining factor in considering his claim to priority. In answer it is sufficient to state that upon presentation of his loan check to the bank the proceeds of the check were completely within his power, and control. The situation is no different than it would have been if, instead of taking part of the proceeds of the check in cash and leaving the balance on deposit in a savings account in the bank, he had received the full amount represented by the check and at the same time or at some subsequent time delivered part of it back to the bank for deposit. We fail to see, so far as this transaction is concerned, that petitioner is in any different position than if he had deposited funds which he had earned in the course of his regular employment or which had come to him from any other source rather than funds which were the proceeds of a loan on his adjusted service certificate. By his deposit he launched his money on the stream of trade and finance, and if the tide of depression carried it and other deposits with which it was commingled into a sea of impaired securities, unpaid loans and shrunken values, he is precluded from claiming any advantage out of the wreck over the other stranded depositors. > In place of his money he had the obligation of the bank to pay him the amount deposited with interest. When the state auditor’s receiver assumed control and took possession of the assets of the bank its action was directed at the bank because of its insolvency and not because of the debt owed by the bank to the petitioner. The receiver did not act in behalf of any creditor of petitioner but his action was in pursuance of the provisions of the Illinois Banking Act for the protection of petitioner, as well as all other creditors of the bank.

In onr opinion the purpose of the Congress of the United States during the entire progress and history of its beneficent legislation on pensions, bonuses, war risk insurance, disability payments and loans on adjusted compensation certificates was clearly to see to it that payments made by the United States actually reached the hands of the beneficiaries and received full protection from the claims of creditors. In the case of Andrew v. Colo Sav. Bank, 205 Iowa 872, 219 N. W. 62, 63, 64, where a civil war pensioner made a time deposit of pension money, known to be such at the time of its acceptance by the bank, which subsequently became insolvent and whose affairs and assets were taken under control by the state superintendent of banking, the Supreme Court of Iowa in construing exemption statutes similar to the one involved here said :

“Manifestly, the intention of the state and the federal government was to so surround the pensioner with protection that his creditors would not be able to seize the subject-matter of the bounty and thus deprive him of its use. In other words, during the course of human events, the thought became developed among states and nations that for the good of mankind there are instances when it is best that creditors go unpaid in order that certain individuals in society may have a particular source of income dedicated to personal or family sustenance, maintenance, and enjoyment. Primarily, the aim is to defend against the onslaught of creditors. Whose creditors'? Clearly those of the debtor who has a right to assert the exemption, and none other.

“Throughout the years of its application, this law has been confined to attempts of ‘creditors’ to collect indebtednesses due them from the ‘pensioner,’ through the process of attachment, garnishment, execution, or some other system of levy and sequestration. For examples of this interpretation' we find among many others, the cases of McIntosh v. Aubrey, 185 U. S. 122, 22 S. Ct. 561, 46 L. Ed. 834; Crow v. Brown, 81 Iowa 344, 46 N. W. 993, 11 L. R. A. 110, 25 Am. St. Rep. 501; . . . Consequently it is consistent with and within the purview of the legislative idea, as well ás in harmony with the numerous judicial pronouncements, to hold that the exemption in this instance is limited in its scope to security against the encroachments of appellee’s personal ‘creditors’ only. Before he can have a ‘creditor,’ he must owe a debt. Was his property taken in the case at bar to satisfy a financial obligation which he owed to any one! Therein lies the criterion for a decision here. An answer to the preceding-interrogatory will determine this litigation.

“As a result of the ‘deposit,’ if it were general, there was created between appellee and the bank the relationship of debtor and creditor. . . . Who then was the debtor and who the creditor 1 Obviously, the bank, in such event, owed appellee. Forsooth, the latter ‘owed’ no one through this transaction. So when, during the administfation of the insolvent institution’s affairs, the receiver, by appropriating the assets, was thereby using the bank’s property for the payment of its liabilities rather than appellee’s money for the payment of his obligations. Said exemption statutes, therefore, become immaterial under this status of appellee’s affairs. He ‘owed’ no debts and had no creditor; therefore the prerequisite for the operation of the exemption did not exist. Need for this shield does not appear, because no antagonistic creditor was approaching.”

In reversing the Court of Appeals of Georgia in a ease where a Confederate veteran pensioner deposited pension money known to be such at the time it was accepted by the bank, which subsequently became insolvent, the Supreme Court of Georgia in interpreting a similar pension exemption statute of that state in Mobley v. Jackson, 171 Ga. 434, 156 S. E. 23, 24, 25, in a well reasoned opinion, containing an able and exhaustive examination of the legal aspects of the problem, held:

‘ ‘ Our Confederate pension law does not in any way define or restrict the uses which the pensioner can make of his pension money. He can do as he pleases with it. He can save it or spend it. He can invest it or keep it in specie. He can even give it away. He can make a general deposit of it in a bank, subject to his check, or he can make a special deposit of it. He can deposit it and take therefor a time certificate, bearing interest. If he makes a general deposit of his pension money subject to check, or if he deposits it and takes therefor an interest-bearing time certificate, the title to the money so deposited immediately passes to the bank, and the relation of debtor and creditor is at once created between the parties. (Citing eases.) . . . We further agree with the Court of Appeals that section 1495. of the Penal Code 1910 is to be given a liberal construction in favor of the pensioner. Giving to this provision such liberal construction, the pensions of Confederate soldiers' and their widows are exempt from garnishment and all other legal process, no matter in whose hands the pension or pensions may be, and no matter whether the pension is in the form in which it was received, or whether it had been changed into some other form. So if this pension money had been deposited in the bank, subject to check, and the pensioner had received therefor only a deposit slip, such fund would be exempt from administration by a receiver of his property. Burgett v. Fancher, 35 Hun (N. Y.) 647. So such a fund would be exempt from seizure by a receiver of the depositor’s property, although the bank was to pay interest on the deposit. Stockwell v. National Bank, 36 Hun (N. Y.) 583. So where such fund is deposited in a bank by the pensioner, and a certificate of deposit, bearing interest, is given therefor by the bank to the pensioner, the money payable by such obligation of the bank to the pensioner could not be subjected to garnishment or to any other process against the pensioner. So, if the pension money of a Confederate soldier is converted into property of any kind, such property under this statute cannot be subjected to any process against the pensioner. So the deposit of a pension check in a savings bank is exempt. Price v. Savings Society, 64 Conn. 362, 30 A. 139, 42 Am. St. Rep. 198. So, if a pensioner should invest his pension money in personal property, the latter would not be liable to be levied upon by any process in favor of his creditor or creditors. The same would be true if his pension funds had been invested in a home. The home would stand in place of the pension, and would be exempt under our statute. Yates County National Bank v. Carpenter, 119 N. Y. 550, 23 N. E. 1108, 7 L. R. A. 557, 16 Am. St. Rep. 855; 25 C. J. 78, sec. 130(c). So, if the pensioner had loaned out his pension money and taken a note therefor, the debtor could not be garnished at the instance of a creditor of the pensioner. So pension money received either in check 'or in specie is exempt. A pensioner may use his pension money in any manner he may desire for his own benefit, or that of his family, free from the attacks of creditors. Holmes v. Tallada, 125 Pa. 133, 17 A. 238, 3 L. R. A. 219, 11 Am. St. Rep. 880. So in this case the funds due upon the obligation of the bank, represented by its time certificate given to the pensioner for his pension money deposited therein cannot be subjected by garnishment or other process against the pensioner.

“. . . Our exemption statute exempts the pensioner ‘from garnishment and all other legal process, no matter in whose hands the pension or pensions may be.’ The garnishment here referred to is one issued upon a suit against the pensioner and against some person having in his hands the pension money of the pensioner. This is likewise true of ‘all other legal process.’ The language that ‘no court or ministerial officer in this State shall ever have jurisdiction or authority to issue or enforce any garnishment or other process against the same,’ means against the pension of the pensioner, no matter in whose hands the same may he. Manifestly the intention of the legislature, in passing this statute, was to surround the pensioner with protection against his creditors, and to prevent his creditors seizing the subject-mattey of the pension and thus deprive him of its use. The purpose of the statute was to defend the pensioner against the onslaught of his creditors. Andrew v. Colo Sav. Bank, 205 Iowa 872, 219 N. W. 62.

“While it is true that where a bank receives a deposit with, knowledge that it is pension money, the resulting obligation of the bank to the pensioner is substituted for the pension, it does not follow that, where the superintendent of banks subsequently takes possession of a bank because of its insolvency, it is his duty on demand of the pensioner to restore to him the equivalent of his deposit as a fund not subject to administration. What the pensioner got in place of his pension money is the obligation of the bank, represented by its certificate, to pay him the amount of money represented therein. The pensioner got the time certificate in place of the pension money. This money when deposited in the bank became the property of the bank. The fund deposited was no longer impressed with the character of the pension. The obligation of the bank stood in place of the pension. The conversion of the pension money into a time certificate of the bank, bearing interest, was not a wrongful conversion of the pension funds. The pensioner could make such investment in order to earn money on his saved pension money. It does not logically follow that because of such investment the pensioner would be entitled to payment from the general funds of. the bank over the preferred claims specified in section 19 of the act of August 26, 1925 (Ga. Laws 1925, pp. 119, 129). The deposit of the money and the taking from the bank of the time certificate therefor, bearing interest, put the obligation of the bank represented by such certificate in the place of the pension money, and the money due on such obligation could not be subjected to any garnishment or other legal process against the pensioner; but such transaction would not have the effect of making the payee in' the time certificate a preferred creditor entitled to payment out of the funds of the bank in preference to those creditors given priority by the act of 1925. This would amount to giving to the pensioner a preference not given by the Banking Act. The purpose of this exempting statute was not to give to the pensioner any lien or priority of payment for money deposited in a bank, but to protect him against garnishment or other legal process sued out by his creditor to enforce a debt due by him to such creditor.”

With the exception of Ramisch v. Fulton, 41 Ohio App. 443, 180 N. E. 735, and State ex rel. Sorensen v. Security Bank of Creighton, supra, the cases cited by petitioner in support of his contention are readily distinguishable from the case at bar.

The claim to priority in Ramisch v. Fulton, supra, was based on the deposit of the proceeds of a loan on an adjusted service certificate, was made under the same exemption section of the United States statutes, and the facts were parallel to the facts in this cause. The Ohio Court of Appeals reversed the trial court and allowed the veteran a preferred claim on the ground that the assumption of control of the affairs and assets of the insolvent bank was such a seizure, under legal or equitable process of the proceeds of the veteran’s loan on his adjusted service compensation certificate, as was contemplated under sec. 618, supra. We are unable to agree with either the reasoning or conclusions of this decision which were essentially the same as the reasoning and conclusions reached by the Court of Appeals of Georgia in its opinion in the case of Mobley v. Jackson, 40 Ga. App. 761, 151 S. E. 522, which was reversed by the Supreme Court of Georgia as heretofore indicated.

The petitioner cites the following paragraph from State ex rel. Sorensen v. Security Bank of Creighton, supra:

“This insurance was never provided for the benefit of creditors. It was specifically provided that creditors should not benefit from it. It was certainly not intended that the creditors of a third party, in this case the depositors in the Security Bank, should benefit from the fund. ’ ’

We find after a careful examination of this decision that the above excerpt from it was mere dictum and that the case was decided on an entirely different theory. It has heretofore been pointed out that the pronouncement of this decision was expressly overruled by the United States Supreme Court in the Spicer case, supra.

We are constrained to agree with the receiver’s contention that there is no warrant in law for petitioner’s claim to priority based on his deposit in the insolvent bank, and that the exemption statute relied on did not comprehend, nor do the authorities support, any right of a beneficiary of the United States except to unimpaired delivery of the fund into his hands, and its protection, before and after delivery, in whatever form it may be found, from his personal creditors.

For the reasons stated herein the order of the superior court, allowing preference and priority to petitioner’s claim, is reversed and remanded with directions to the chancellor to vacate the order, and to enter an order, allowing petitioner a general claim upon presentation of a proper petition.

Reversed and remanded with directions.

Gridley and Scanlan, JJ., concur.


source: Caselaw Access Project

author: Mr. Presiding Justice Sullivan

license: Public Domain

text:
    State-Washington Stores Company, Appellee, v. Walgreen Company, Appellant.
    Gen. No. 36,594.
    Opinion filed November 21, 1933.

      Markheim & Allie, for appellant; Harry Markheim and A. R. Miller, of counsel.
    Taylor, Miller, Busch & Boyden, for appellee; Taylor, Miller, Busch & Boyden, Preston Boyden, James J. Magner, Cassius M. Doty, William Klevs, Winston, Strawn & Shaw and John D. Black, of counsel.
   Mr. Presiding Justice Sullivan

delivered the opinion of the court.

Defendant, Walgreen Co., seeks by this appeal to vacate a judgment for $18,750 rendered against it in favor of plaintiff, State-Washington Stores Co., in a distress for rent proceeding in the municipal court of Chicago. The case was tried before the court without a jury.

Plaintiff’s claim is for rent for the months of May, June and July, 1932, at the rate of $6,250 a month for space in the premises at the southwest corner of State and Washington streets, Chicago, under the terms of-a lease executed May 1, 1928, by Warmington, Inc., landlord, and Walgreen Co., tenant; that the reversionary interest and all right, title and interest in this lease°was transferred and assigned to it by Warming-ton, Inc., under an agreement entered into November 18, 1929; that defendant continued to pay plaintiff the rent provided in the lease from January, 1930, until May, 1932, when it refused to pay the rent due under the lease, and that it still persists in its refusal.

The allegations of defendant’s affidavit of merits pertinent to this appeal are that the act of plaintiff in accepting the assignment of the leasehold estate was ultra vires and null and void, that plaintiff therefore has no right or power to maintain this action, and that the sole object of the incorporation of plaintiff was “to own, operate and conduct a department store or stores for the purchase and sale at retail and wholesale (of) dry goods, shoes, clothing and all other articles of merchandise commonly sold in department stores.”

The affidavit of merits further alleged that the building known as the Reliance Building, part of the main floor of which was leased to defendant, consists of a 14-story and basement building; that the ground floor is divided into two store rooms, one of which with part of the basement space is covered by the lease to defendant for a term commencing May 14, 1928,. and ending May 13, 1948; that the remaining store on the main floor and the balance of the basement space, with the entire second, third and fourth floors of the building were leased June 25, 1928, to the Miller-Wold Co., Inc., a New York corporation, for a period of 20 years, and that the Miller-Wohl Co. has been occupying said premises and conducting therein the business of selling ladies ’ garments and other merchandise; that the remaining 10 floors of the building were divided into various rooms for offices and have been rented to various tenants for various purposes; that such of the offices as have not been rented by plaintiff are held by it for the purpose of renting or leasing; that plaintiff has never occupied any part of the building for any purpose whatsoever, except that it has maintained an office in the building; that plaintiff never owned or occupied any real estate other than this building and has-never engaged in any business for which it was incorporated either in this building or elsewhere; that the only business plaintiff has ever carried on is that of holding this leasehold estate as an investment and receiving rentals from tenants; that plaintiff acquired this leasehold estate and the building thereon, not for any purpose set forth in its statement of incorporation, but as an investment and for the purpose of leasing to tenants; that it was impossible for plaintiff to carry on the business of conducting a department store in this building because such parts of the building as could be so used were at the time of the incorporation of plaintiff under long term leases to tenants, including defendant, and that plaintiff did not intend at the time of its purported incorporation, and has not at any time subsequent thereto, intended to own, operate and conduct a department store for the purchase and sale of dry goods, shoes, clothing and all other articles of merchandise commonly sold in department stores, or to conduct any of such activities in this building or any other, building; and that plaintiff has never since its purported incorporation made any use of the powers granted to it in its articles of incorporation and has never intended to make any such use thereof.

Other questions were raised in the trial court but defendant’s sole contention here is that the acquisition by plaintiff of the leasehold from Warmington, Inc., was for investment purposes only, and not for the conduct of a department store, and was therefore ultra vires and void, so that it could not bring an action for rent based on the lease to defendant.

Plaintiff’s theory is that it is a mercantile corporation organized for lawful purposes with statutory powers to acquire real estate and that its acquisition of the property of its predecessor, Warmington, Inc., including the reversionary estate in the premises demised, was not ultra vires of its corporate object, because plaintiff was merely a reorganization of Warmington, Inc., which admittedly was acting intra vires in leasing the premises to defendant; that it was exercising its corporate franchise by having lessees conduct department stores on the premises; that the defense of ultra vires cannot prevail inasmuch as it was incorporated for a lawful purpose, and the object and purpose of a corporation must be determined solely from its charter; that alleged secret purposes of incorporators cannot be urged as rendering a corporation unlawful when the object and purpose set forth in its charter are lawful, and that defendant cannot collaterally attack the validity of the leasehold acquired by plaintiff by assignment from Warmington, Inc., so long as plaintiff was incorporated for a lawful purpose.

The facts admitted or undisputed on the record are that the lease sued on was made May 1, 1928, between Warmington, Inc., plaintiff’s assignor, or lessor, and defendant, as lessee, for a term of 20 years, commencing May 14, 1928, and the rent reserved was $1,500,-000, payable in equal monthly instalments of $6,250, and an additional percentage rental based upon the amount of defendant’s sales; that defendant was in undisturbed possession of the premises specified in the lease during May, June and July, 1932, and was still in possession at the time of the trial; that although payment was demanded no rent for these months was paid; that plaintiff’s claim is as assignee of the reversionary estate under the lease from Warmington, Inc., to defendant, pursuant to a written assignment dated November 18, 1929, from Warmington, Inc., to it; that subsequent to the date of this assignment defendant paid the monthly rentals provided in the lease, up to and including April, 1932; that reports as to the amount of business done upon the premises were also made by defendant to plaintiff, pursuant to the terms of the lease, and that at the time of the execution of the lease between Warmington, Inc., and defendant, Warmington, Inc., had full power and authority under its charter to make the lease to defendant.

It appeared that Warmington, Inc., was incorporated January 18, 1927, for the purpose of operating a department store or stores; that it acquired the leasehold estate January 23, 1927, and immediately took possession of the premises; that it proceeded to remodel the first seven floors and basement at a cost of more than $500,000 to render them suitable for the operation of a department store, expending an additional sum in excess of $75,000 for the installation of furniture and fixtures adapted to department store purposes; that Warmington, Inc. operated a department store in the first seven floors and basement of the premises until the spring or summer of 1928, when insurmountable financial difficulties compelled it to liquidate; that it disposed of its merchandise and May 1, 1928, leased part of the ground floor and basement to defendant whose business was the sale of drugs, the usual accessories of drug stores and sundry merchandise; that a lease was executed between Warmington, Inc. and Miller-Wohl Co. for a term of 20 year commencing July 15, 1928, covering the balance of the basement and ground floor and all of the mezzanine, second, third and fourth floors, including the fixtures theretofore installed, for the operation and conduct of a department store; that at the time of the assignment of the leasehold by Warmington, Inc. to plaintiff, George W. Swigart and Charles J. Canfield owned all of the stock of Warmington, Inc., except one qualifying share held by Orville J. Taylor; that the corporation was obligated to the First National Bank to the extent of $400,000, and was indebted to Swigart and Canfield in excess of $500,000 for money advanced to it for the purpose of remodeling the premises and carrying on its business prior to its liquidation; that the incorporation of plaintiff was in the nature of a reorganization of Warmington, Inc. and it took over not only the leasehold but the furniture and fixtures of Warmington, Inc.; that all of the capital stock of plaintiff, except three qualifying shares issued one each to Swigart, Canfield and Taylor, were issued to Warmington, Inc., in consideration of its assignment of its interest in the leasehold and fixtures to plaintiff; that Warmington, Inc. in turn transferred all of the stock in plaintiff corporation received by it to Swigart and Canfield, in consideration of its indebtedness to them and their assumption as individuals of its indebtedness of $400,000 to the First National Bank, and that at the time of the commencement of this action Swigart and Canfield were the sole owners, ivith the exception of one qualifying share held by Taylor, of all of the stock of plaintiff and were with Taylor its officers and directors, as they were at the time of the assignment of the leasehold by Warmington, Inc. to plaintiff the sole owners of its stock and its officers and directors.

The record discloses that plaintiff is virtually a reorganization and continuance of its predecessor, Warmington, Inc., under a new name with a rearranged corporate stock structure. Its objects and purposes, the owners of its stock, its managers and agents, its properties and assets are the same as those of its predecessor. It is undisputed that a substantial portion of the building was at the time of and ever since the creation of plaintiff corporation and still is being used for mercantile purposes both by defendant and MillerWohl Co., and that the building is suitable for department store purposes. The latter company used and still uses fixtures belonging to plaintiff which were used by Warmington, Inc. in the conduct of its department store. In addition to the minimum rental of $6,250 monthly, defendant’s lease provided for payment to lessor of an additional percentage of its annual sales over $750,000.

In People v. Walker Opera House Co., 249 Ill. 106; LaSalle v. Hamilton Nat. Bank, 204 Ill. App. 518 (certiorari denied by the Supreme court); Starke v. Guf fey Petroleum Co., 98 Tex. 542; Bartholomew v. Derby Rubber Co., 69 Conn. 521; Coal Creek Min. & Mfg. Co. v. Tennessee Coal, Iron & R. Co., 106 Tenn. 651, 62 S. W. 162, and Featherstonbaugh v. Lee Moor Porcelain Clay Co., L. R. 1 Eq. Cas. 318, it was ‘held that compliance with the objects of the charter of a corporation, through lessees, was lawful compliance with the objects for which the companies were incorporated.

However, we deem it unnecessary to decide whether the facts in this case bring it within the law as held in these decisions. The operation of the Miller-Wohl Co. department store, defendant’s and other merchandising businesses, demonstrates conclusively that the building was used for the objects and purposes designated in plaintiff’s charter. This being true, it follows in logical sequence, that the -only possible front on which plaintiff might be vulnerable to attack is as to whether or not in the method and manner of the operation of its corporate business it abused or unlawfully exceeded its charter powers, and such attack can be made only by the State in a direct proceeding. Defendant, in its endeavor to be relieved of its obligation to pay rent under its lease, is clearly precluded from collaterally asserting any claimed abuse or unlawful excess of plaintiff’s charter powers as a defense against plaintiff’s claim. The statement of plaintiff’s purposes as set forth in its article of incorporation is as follows:

“The object for which it is formed is: to own, operate and conduct a department store or stores for the purchase and sale at retail and wholesale, dry goods, shoes, clothing and all other articles of merchandise commonly sold in department stores.”

Corporations created under the General Corporation Act of this State are empowered under our law to acquire, own, possess and enjoy so much real and personal property as may be necessary for the transaction of the business of such corporations, and to lease, mortgage, pledge, sell, convey or transfer same. The purposes and objects of plaintiff’s incorporation are obviously lawful, as is also its right to acquire and hold real estate as a power incidental to its business purposes.

From the written opinion filed by the trial judge in this cause we adopt and quote the following finding, which we deem particularly apt and pertinent:

“Defendant’s claim that the plaintiff at the time of its incorporation had no intention of conducting, and that it was not its purpose to conduct, the business specified in its charter amounts to a collateral attack upon the lawful creation and existence of said corporation and its consequent powers to acquire, hold and lease the premises in question, and if tenable is one of the few exceptions to the general rule that prevails in this state, as well as in all other states, that only the state can question the legality . of the incorporation of a corporate body. We understand the true rule of exception to be applicable only where the express charter object falls outside the scope of the enabling act, nor is the defense of ultra vires available except in cases where the acts complained of are wholly outside the general scope of a company’s corporate powers, expressed or implied, and entirely foreign to the objects and purposes of its creation; something which under any and all circumstances was beyond its powers, either as expressed in the grant or as possessed by necessary implication.”

Carroll v. City of East St. Louis, 67 Ill. 568, and Imperial Bldg. Co. v. Chicago Open Board of Trade, 238 Ill. 100, cited by defendant as supporting its coiltention that the acquisition of the leasehold by plaintiff was and is ultra vires, are cases within the exception that their express charter object or objects fall outside the scope of the enabling act, and have no application to this proceeding.

In the Carroll case, a foreign corporation organized for the charter purpose of dealing in land attempted to acquire title to certain lands in this State. At that time it was legally impossible for a corporation to be created in Illinois whose sole object was dealing in land, and the court held that a foreign corporation could not be licensed or permitted to exercise a charter purpose in this State which was beyond the purview of any enabling act of our legislature then in force.

In the Imperial Building Co. case, supra, an attempt was made to incorporate, with the object of acquiring real estate for the purpose of erecting a building thereon, to make leases and collect rents for the use of the building. At that time no corporation could be formed under the law of Illinois for that purpose, and the court consistently held that a certificate of incorporation for such purpose did not result in the creation of a corporation, and that a lessee could successfully defend on that ground in a collateral proceeding against a claim on the lease.

The National Home Bldg. & Loan Ass’n v. Home Savings Bank, 181 Ill. 35; North Ave. Bldg. & Loan Ass’n v. Huber, 270 Ill. 75; Calumet & Chicago Canal & Dock Co. v. Conkling, 273 Ill. 318; and Mercantile Trust Co. v. Kaster, 273 Ill. 332, cited by counsel for defendant in support of its contention that the acquisition of a leasehold by a lawfully created corporation is subject to collateral attack on the ground of its being ultra vires, were all cases that came squarely within the rule that the defense of ultra vires was available only in cases where the act complained of was wholly outside the general scope of the company’s corporate powers, expressed or implied, and entirely foreign to the purposes and objects of its creation; something which under any and all circumstances was beyond its powers either as expressed in the grant or as possessed by necessary implication. These cases are readily distinguishable from this proceeding where the charter purposes are conceded to be lawful, and where no act is complained of that is wholly outside the general scope of plaintiff’s corporate powers, and entirely foreign to the purposes and objects of its creation.

In the National Home Bldg. & Loan Ass’n case, supra, the building association was empowered under its charter to lend money to its members only and in a trade of lots assumed an incumbrance payable to a nonmember for a lot conveyed to it. Subsequently, recognizing the transaction as beyond its charter power to lend money to members only, it unconditionally conveyed the property back to its grantor. Later the mortgagee attempted to enforce a deficiency judgment against the association, and the court held that the transaction being entirely beyond the charter purposes for which the corporation was created, its lack of power to make the contract was a good defense. In that case the act of the corporation was wholly outside the general scope of the association’s corporate powers and entirely foreign to the purposes for which it was created.

North Avenue Bldg. & Loan Ass’n v. Huber, supra, involved a foreclosure proceeding by a building and loan association. Defendant Huber executed notes and a trust deed to secure the notes to one Kemper for a loan made by him to Huber. Kemper sold the notes and trust deed to the building and loan association of which he was a member. Upon, default in the payment of the notes the association and Kemper brought foreclosure proceedings against Huber, and the court sustained his defense that the association, by making a loan to a nonmember and taking a mortgage as seCurity therefor, was pursuing a purpose entirely outside the general scope of its powers and foreign to the purposes °of its creation.

In Calumet & Chicago Canal & Dock Co. v. Conkling, supra, Conkling applied to the dock company for a loan of $30,000, which was refused on the ground that the company was not empowered under its charter to make the loan. Conkling then proposed to purchase a lot belonging to the dock company for $15,000 on credit, providing the company would at the same time lend him $35,000, taking back his notes for $50,-000 and a mortgage on the land so purchased by him, and on an adjacent lot already owned by him. The proposal was accepted and the loan made. Upon default in the payment of the notes the company attempted to enforce the loan contract through foreclosure proceedings. It was held that it could not because the making of the loan was wholly beyond the general scope of its powers as declared in its charter.

The Mercantile Trust Company case, supra, involved an action upon a guarantee contract. The corporation had the power to buy and sell commercial paper but was not empowered to make loans, and the court held that the agreement in question was in effect not a contract for the purchase of accounts but a loan with a pledge of the accounts as security. The court refused to enforce the contract because the making of loans and taking guarantees of loans was entirely foreign to the charter objects of the corporation.

McIlvaine v. Foreman, 292 Ill. 224, is cited by defendant as conclusive of its contention that the acquisition of the leasehold estate by plaintiff was for investment purposes only and therefore ultra vires its objects as designated in its charter and clearly subject to collateral attack. In the McIlvaine case, the Dakota Building Co., a corporation, in 1888 acquired a leasehold estate for 99 years in certain property in the central business district of Chicago, and in October, 1917, conveyed to certain individuals each an undivided half interest in the leasehold theretofore acquired by it. The leasor, owner of the fee in the property, died in 1908, and in December, 1917, the trustees of her estate served notice on the assignees of the leasehold that they had renounced the lease, which had been executed between deceased lessor and the Dakota Building Co., on the ground that the company was not a legally organized corporation and had no power or right to receive the purported lease or take possession of the property. Thereupon one of the assignees of .the leasehold from the Dakota Building Co. filed a bill for partition making the other assignee and the trustees of the estate defendants. The trustees filed an answer asserting that the purported Lease was invalid and null and void, and by their cross-bill asked that the lease be declared to be a cloud upon their title and that it be set aside and declared null and void. When the Dakota Building Co. was organized its charter declared that “the object for which it is formed is the erection of buildings and construction and leasing of safety deposit vaults and the acquiring of leasehold estates in real estate situated in said county of Cook and the erection and improvement of buildings thereon.” In its decision in the McIlvaine case the Supreme Court used the following language (pp. 228 and 229):

“Whether the purpose of a corporation is within the scope of the statute under which the corporation is sought to be organized is to be determined solely from its charter. We have heretofore held that the general Incorporation act does not authorize the organization of a corporation for the purpose of ‘ acquiring . . . leasehold estates in real estate . . . and the erection and improvement of buildings' thereon. ’ (Imperial Building Co. v. Board of Trade, 238 Ill. 100.) But the fact that the articles of association contain unauthorized provisions in addition to those which are authorized does not render the- organization of the corporation void, for they may be rejected as surplusage. (People v. Chicago Gas Trust Co., 130 Ill. 268.) It is lawful for a corporation to be organized in this State for the purpose of engaging in the business of operating safety deposit vaults. (Rector v. Hartford Deposit Co., 190 Ill. 380.) But it is contended by appellants that the ‘construction and-leasing of safety deposit vaults’ is not operating them, and that it is no more lawful to organize a corporation for the purpose of constructing and leasing safety deposit vaults than it would be to organize a corporation for the purpose of constructing and leasing factories, mills or hotels. We do not consider it necessary to determine this question because it is conceded that the incorporators of the Dakota Building Company had no intention of engaging in the business of operating-safety deposit vaults. We think it clear from the stipulation of facts filed in this cause that the only purpose of the organization of this corporation was the acquiring and holding of this piece of real estate as an investment, and it is equally clear that this object and purpose are against our statute and against the declared public policy of this State. (Carroll v. City of East St. Louis, 67 Ill. 568; Imperial Building Co. v. Board of Trade, supra; People v. Shedd, 241 Ill. 155.) The question here presented is not whether the power given this corporation by its charter has been abused, but the question is whether the corporation had any lawful authority, under, its charter, to accept and hold the leasehold interest in this property. Where a corporation has the general power to possess real estate and a building necessary for its proper corporate purpose, the State, only, may raise the question of abuse of such power (Rector v. Hartford Deposit Co., supra), but where the act done by the corporation is beyond its legal powers the act is wholly void and of no legal effect and the legality of the act may be raised by any party affected by it.” (Citing cases.) We cannot agree with the deductions drawn by defendant’s counsel from either the reasoning or conclusions of the Supreme Court in this decision. We are firmly of the opinion that this decision is in complete accord with its previous decisions and distinctly supports plaintiff’s theory in the instant case.

At the outset the decision reiterates the rule that whether the purpose of the corporation is within the scope of the statute, under which the corporation is sought to be organized, is to be determined solely from its charter. The court found that the only language used in the charter of the Dakota Building Co. specifying its corporate purposes that could possibly bring it within the scope of the statute were the words “constructing and leasing of safety deposit vaults,” and stated that it was lawful for a corporation to be organized for the purpose of engaging in the business of operating safety deposit vaults, but was relieved of the necessity of determining whether “constructing and leasing of safety deposit vaults” could be construed as operating safety deposit vaults, because it was conceded under the stipulation of facts in that case that the incorporators of the Dakota Building Co. never had any intention of operating safety deposit vaults. By reason of the stipulation of facts the court could find no lawful purpose in the corporation’s charter solely from which it had to determine whether the object of the corporation was within the scope of the statute under which the corporation was sought to be organized. It was of necessity compelled to find that the only purpose of the incorporation was the acquisition and holding of the real estate simply for an investment. In its final analysis the situation as to the Dakota Building Co. was comparable to the situation disclosed in the Carroll v. City of East St. Louis and the Imperial Building Co. v. Board of Trade cases, supra, where the express charter purposes of the corporation fall outside the scope of the enabling act. The distinction between the McIlvaine case and the instant case is clear and obvious. The Supreme Court, upholding the plaintiff’s contention, repeats the recognized rule “where a corporation has the general power to possess real estate and a building necessary for its proper corporate purposes, the State, only, may raise the.question of abuse of such power. . . .”

It is unquestioned in this cause that the objects and purposes of plaintiff, as set forth in its articles of incorporation, were entirely lawful and wholly within the scope of the statute which authorized its incorpora-tion, and it cannot be doubted that it was empowered under the statute to acquire and hold such real estate as was necessary to the conduct of its business. Therefore, under the reasoning and conclusion of the Supreme Court in the McIlvaine case, the defense of ultra vires cannot avail here.

It is a fundamental principle of corporate jurisprudence that, although it may be ultra vires for a corporation to acquire title to land so that in the executory stage of the transaction a grantor could refuse to complete the transfer of title, or where the transaction is executed the State could compel the corporation to dispose of the property improperly acquired, once the transaction is completed a valid title vests in the corporation and it is not subject to attack by third persons, provided the corporation has the power to acquire land for some purposes.

This doctrine was enunciated by the Supreme Court of this State in the case of Hough v. Cook County Land Co., 73 Ill. 23, and has been adhered to without deviation. In the Hough case the court said, p. 27:

“There seems to us, however, to be this important distinction between the principle recognized in these authorities (referring, among others, to Carroll v. City of East St. Louis, supra) and that applicable here. There, by reason of the express or implied prohibition of the law, the party is absolutely denied the power to acquire any rights through the particular contract. Here, there is power to purchase, receive conveyances and hold title to lands, but it is prohibited that they shall be purchased and held for other than a prescribed purpose. In the one case, the principle affects the power of acquisition; in the other, it affects simply the use to which the acquisition shall be applied. . . .

“But appellee being authorized to purchase and hold lands, and appellant having sufficient capacity to convey, the title was obviously vested in appellee by the delivery of the deed, and the question whether appellee has, by its purchase and use of lands, exceeded the powers conferred by its charter, is one between the State and appellee, with which appellant, as a grantor simply, has no concern. Banks v. Poiteaux, 3 Randolph, 141; Barrow v. N. & C. T. Co., 9 Humphreys, 304; Chambers v. St. Louis, 29 Mo. 576; Attorney General v. Tudor Ice Co., 104 Mass. 239; Whitman Mining Co. v. Baker, 3 Nevada, 391; Hayward v. Davidson, 41 Ind. 212; Angell & Ames on Corp. secs. 152-3; Dillon on Munic. Corps, sec. 444; Natoma W. and M. Co. v. Clarkin, 14 Cal. 544.

“It is well observed by Field, J., in the case last above referred to, at p. 552: ‘It would lead to infinite embarrassment if, in suits by corporations to recover the possession of their property, inquiries were permitted as to the necessity of such property for the purposes of their incorporation, and the title made to rest upon the existence of that necessity.’ ”

The rule was reaffirmed in the case of Alexander v. Tolleston Club, 110 Ill. 65, 72, where the court held:

“Even if appellee has exceeded in extent its power of holding real estate, appellant, we conceive, cannot take advantage of the fact. In Hayward v. Davidson, 41 Ind. 214, the rule is acknowledged to be, in such cases where a corporation is authorized by its charter or the law of its creation, in some cases, to take and hold the title to- real estate, that ‘as the corporation may, for some purposes, acquire and hold the title to real estate, it cannot be made a question by any party, except the State, whether the real estate has been acquired for the authorized uses or not,’ and quotes the language of Judge Dillon upon the subject, in his' work on Municipal Corporations, sec. 444: ‘If there is capacity to purchase, the deed to the corporation divests the estate of the grantor, and there is a completed sale; and whether the corporation in purchasing exceeds its power is a question between it and the State, and does not concern the vendor.’ . . .

“The inequitable character of the claim which is here set up to defeat this lease because of the alleged incapacity of appellee to take it, is, under the facts of this case, apparent. This objection, that the power to acquire and hold lands is not conferred by the statute of 1872,' is not well taken. And we think the same must be said with respect to such power not being conferred by the laws of the State of Indiana, and as to its supposed policy. Whatever such may be, would seem, under the authorities above cited, to be a matter which appellant cannot avail himself of in this suit, — that that is not a thing of individual concern, but that it. is to be left with that State alone to assert for herself any laws or policy of her own upon the subject, as she may, or not, see fit to do.”

In passing upon the same proposition the following language was used by the Supreme Court in Cooney v. Booth Packing Co., 169 Ill. 370, 372, 373:

“It is next contended that appellee, being an Illinois corporation, cannot own real estate except where it is taken for a debt due it or is necessary for the transaction of its business, and there being no evidence in the record that the real estate in question was so taken for a debt or was necessary for the transaction of the business of the corporation, equity will not lend its aid in establishing title in appellee. This point cannot be sustained. In Barnes v. Suddard, 117 Ill. 237, we held that if a corporation has power to take and hold real estate for any purpose, when the deed to it is executed the title passes to it, and whether the corporation exceeded its powers in accepting the conveyance was a question which could only be raised by the State. ’ ’

In Hayden v. Hayden, 241 Ill. 183, 185, 186, the court said:

“It is suggested in appellee’s brief that the Hayden Manufacturing Company had no corporate power to take and hold the title to the property. It is said that that corporation was organized to carry on a manufacturing business, and that the property was never occupied or used by it in its business but was a residence, which it could not legally own. The corporation had the power to acquire real estate for the purposes of its business, and if in taking the conveyance it exceeded its powers the State alone can interfere.”

The Supreme Court reasserted the principle in Golconda Northern Ry. v. Gulf Lines Connecting R. R., 265 Ill. 194, 204, 205, where this language was used:

“Where a corporation has power to hold real estate under any circumstances or for any purpose, its title cannot he questioned by any person except the State.” (Citing cases.)

As late as December, 1932, in the case of Wolff v. Schwill & Co., 351 Ill. 28, the following pronouncement was made by the Supreme Court:

“The plaintiff in error cannot well question the right of the defendant in error to hold land for certain purposes in view of its express charter powers in that regard. Whether the defendant is now holding the land in question within the scope of its charter powers or in abuse thereof is a question which the State of Illinois alone can raise. Bartee Tie Co. v. Jackson, 281 Ill. 452; Hayden v. Hayden, 241 id. 183; Springer v. Chicago Real Estate Loan Co., 202 id. 17.”

A leading case in point and one frequently cited in this and other jurisdictions as to the disposition of property lawfully acquired by a corporation is Rector v. Hartford Deposit Co., 190 Ill. 380, where in its opinion the court said (pp. 386, 387) :

“The superior court refused to hold as correct the following proposition of law, presented by the appellee company, viz.:

“ ‘The court holds as a proposition of law in the trial and decision of this case, that the plea of ultra vires may be successfully interposed in a collateral proceeding where the corporation is alleged to have performed an act which it was not, under any circumstances, authorized to perform, but that where the act is one which at most is but a mere abuse or excessive use of a general power conferred upon the corporation by its charter such plea cannot be successfully interposed,-because the question of ultra vires can in such cases be raised only in a direct proceeding by the State to oust the corporation of its usurped powers.’

“This proposition presents the correct legal doctrine, as we think. That the appellee company possessed ample power to acquire real property and construct a building thereon for the purpose of trans- ' acting therein the legitimate business of the corporation is beyond the range of debate. Nor is the contrary contended, but the insistence is that under the guise of erecting a building for corporate purposes the appellee company purposely constructed a much larger building than its business required, containing many rooms intended to be rented to others for offices and business purposes, among them the basement rooms contracted to be leased to the appellant, - and that in so doing it designedly exceeded its corporate powers. The position of appellant therefore is, that the appellee corporation has flagrantly abused its general power to acquire real estate and construct a building thereon. Conceding that position to be correct, we do not think it can be availed of as a defense in an action brought by the corporation to recover rent contracted to be paid for the use of one of the rooms of the building.”

These cases conclusively establish the proposition that, if a corporation has the power to acquire real estate for any purpose, and it acquires property in excess or in abuse of its powers and objects, its action in excess or abuse of its powers cannot be attacked or questioned by anyone except the State.

We are constrained to hold that there is no merit in defendant’s contention that the acquisition of the leasehold in question was ultra vires of plaintiff’s charter, and that even though its acquisition of the leasehold was ultra vires of its objects and purposes, defendant cannot attack it in a collateral proceeding for the purpose of relieving itself of its obligation under its lease to pay rent for the premises occupied and enjoyed by it.

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

Affirmed.

Gridley and Scanlan, JJ., concur.


text:
    Harriet A. Rife, Appellee, v. William H. Rife, Appellant.
    Gen. No. 36,687.
    Opinion filed November 21, 1933.
    Glenn P. Sayers, for appellant.
    Frank H. Graham and Ina M. R. Campbell, for appellee.
   Mr. Presiding Justice Sullivan

delivered the opinion of the court.

Defendant, William H. Bife, brings this appeal to reverse an order of the circuit court requiring him to pay complainant, Harriet A. Bife, or her solicitors, $752 for the support of his daughter, and $200 solicitors’ fees. This order was entered following a hearing on defendant’s petition .and complainant’s answer thereto. The petition prayed that certain writs of attachment directed against defendant be quashed and that an order be entered satisfying a divorce decree entered July 8, 1927.

The material allegations of defendant’s petition were that a decree of divorce was entered July 8,1927, in the circuit court in favor of complainant and against defendant; that during the months of April and May, 1932, at least two orders for attachment were entered against him for alleged arrearages in the payment of money for the support and education of his daughter, Ina Eunice Bife, claimed to be due under the terms of the decree; that by the terms of the decree property rights were settled between complainant and defendant by his conveyance to her of certain property and payment of $3,500 in her behalf in lieu of alimony; that the decree contained a finding “that the defendant has agreed to pay to the said complainant the sum of $16 per week in advance for the support and education of his child, Ina Eunice Bife, until the further order of this court”; that since the entry of the decree he paid $16 a week for his daughter’s support, up to and including the month of August, 1931, which payments extended eight months beyond the attainment by his daughter of her majority; that his daughter graduated from a business college as well as from the Lakeview High school, and that she would be 20 years of age February 5, 1933; that he was 65 years of age, in ill health and had no income except such as he received from his own labor and effort; and that he had fully complied with the terms of the divorce decree. The petition concluded with the prayer that .the writs of attachment be quashed and that an order be entered satisfying the decree of July 8, 1927.

Complainant’s answer, which purported to be a counter petition as well as an answer, admitted that defendant had complied with all the terms of the decree affecting her individual rights and that he had faithfully and regularly made his payments for the support of the child, not only until she reached her majority but for eight months thereafter, but denied that defendant was in ill health. It averred that the child was frail, and that although she was a stenographer she was unable to secure employment because of the depression. The answer was replete with immaterial allegations and in large part was a discourse on the alleged villainy of this particular father and the natural duty of all fathers to support their children, both before and after they had reached their majority. It concluded with .the prayer that an order entered August 4, 1932, be expunged from the record and for general equitable «relief.

The order of August 4, 1932, was entered on the same petition of defendant heretofore referred to and stayed the writs of attachment theretofore issued for defendant until the further order of the court, continued the hearing’ on the petition until September 19, 1932, and directed, without prejudice to the parties as to complainant’s claim against defendant for alleged delinquency in payments for the support of the daughter, that no further payments be required from and after that date.

After several continuances the chancellor, January 8, 1933, entered the order appealed from, which set out the terms of the original decree and found, among other things, that defendant failed to fully comply with the terms of the decree, in that he was in default in payments for the support of his daughter from September 12, 1931, until August 4, 1932, and that prior to August 4, 1932, he had" made no motion to modify the decree with reference to payment of money for the support of his child, and after quashing the writs of attachment and confirming the order of August 4, 1932, providing that payments for the support of the daughter cease on that day, directed defendant to pay to complainant, or her solicitors, $752 as and for support money for his daughter from September 12, 1931, the date defendant discontinued his payments, to August 4, 1932, the date that the court had theretofore ordered payments for the daughter to cease accruing and to pay $200 solicitors’ fees to complainant or her solicitors.

Defendant contends that the jurisdiction of the court to order support for a child under a decree of divorce exists only during the minority of the child; that the words “until the further order of the court,” in the divorce decree, are ineffective to extend jurisdiction beyond the majority of the child; and that after a decree has been fully complied with and the child has reached its majority the county court is the proper forum in which to compel a father to support his child in a proper case.

Complainant’s theory, although not definitely stated, appears to be that the words in the original decree “until the further order of the court,” constitute such a reservation of authority as conferred jurisdiction on the court, more than six years after the entry of the decree, to compel payment by defendant for the support of his daughter, regardless of the fact that she had reached her majority.

Sec. 18, chap. 40, of Cahill’s Revised Statutes, 1931, U19, entitled “Divorce,” in force when this matter was heard, provides as follows:

“When a divorce shall be decreed the court may make such order touching the alimony and maintenance of the wife, the care, custody and support of the children, or any of them, as, from the circumstances of the parties and the nature of the case, shall be fit, reasonable and just; and in case the wife be complainant, to order the defendant to give reasonable security for such alimony and maintenance, or may enforce the payment of such alimony and maintenance in any other manner consistent with the rules and practice of the court. And the court may, on application, from time to time, make stoch alterations in the allowance of alimony and maintenance, and the care, custody and ¡support of the children, as shall appear reasonable and proper.”

The rule is well established and generally recognized that the only authority a court of chancery has to provide for the care and support of children is the power granted under the terms of this statute, and that its power is limited by implication to the custody, support and care of minor children. Undoubtedly, by reason of the fact that this .doctrine has been so generally accepted and applied, our Supreme Court, so far as we have been advised, has never been called upon to decide whether a father can be compelled by a court of equity, either while a divorce proceeding is pending or subsequent to the entry of a divorce decree, to provide support or education for an adult child under any circumstances. The rule is also well recognized that in the , absence of a proceeding for divorce, a court of equity has no jurisdiction either as to the custody or support of children.

The Supreme Court in Kelley v. Kelley, 317 Ill. 104, 110, 111, apparently recognizing the first rule above stated, used the following language:

“The nurture and proper training of the children of divorced! parents being matters of vital interest to the State as well as to the children themselves, the legislature has provided that the court granting a divorce shall have full and continuing jurisdiction, during the minority of such children, to make from time to time such orders with respect to their care, custody and support as reason and justice shall require. While the marriage relation may be dissolved and the marital rights and duties thereby brought to an end, the relation of parent and child cannot be destroyed. The obligation of the father to support his children begins when the child is born and continues during the minority of the child. This obligation of the father to support his minor child is not affected by the decree granting a divorce, nor by a decree granting the care and custody of his child to his wife or some other suitable person. His children are of his blood. It is not their fault that their parents have been divorced. It is their right to be given care by those who brought them into the world until they are old enough to take care of themselves. We entertain no doubt that the court that granted a decree in this case awarding the custody of the child to the mother had authority, upon the presentation of a petition for the purpose, to issue a citation requiring the father to appear and show cause, if any he had, why he should not be required to assist in supporting his minor child.” (Italics ours.)

This doctrine was applied in Boehler v. Boehler, 125 Wis. 627, 629-630, where proceedings were had to compel a divorced husband to provide support for a 25-year-old daughter, alleged to be unable to support herself, and the court in construing the divorce statute of that State (Wisconsin statute specified minor children) held:

“An action for divorce is a statutory proceeding. The limit of judicial authority therein does not extend beyond that specified in the written law (7 Ency. Pl. & Pr. 52), which provides that the court may, upon entering a decree of divorce, in case of there being minor children, provide for their care, custody, maintenance, and education, and in its discretion award such custody to either of the parties. Sec. 2362, Stats. 1898. No authority is conferred by statute to provide in a divorce judgment or any proceedings in a divorce action for the support of adult children of the parties. The plain meaning of the statute as to children is that provision for their maintenance shall be limited to' the period of minority. Words to that effect are a part of the statute by necessary implication. The custody spoken of is that control of children, belonging as a matter of right to parents, which, of course, does not extend beyond minority. It follows that the modification of the divorce judgment complained of was worse than mere error. It was extrajudicial. It was and is a nullity.

“The proceeding on the part of appellant to obtain a modification of the divorce judgment by inserting therein a clause limiting his obligation for the maintenance of his children to their minority, was wholly useless. The judgment needed no such modification. It only provided for such support during the time the mother was given the care and custody of them, which, as before stated, necessarily ended with their minority. It could not be extended beyond that time by the court and there is no room in the language of the judgment to suppose that there was any purpose thereby to extend it.

“If, for any reason, appellant be legally bound to contribute for the support of his adult child, Adelia, the obligation rests upon conditions satisfying the statute as to the support of the poor, and the remedy to enforce it is the one specially prescribed by the statute for such cases, not by a proceeding in the divorce action. ’ ’

In passing on the provision of the California Civil Code on Divorce, almost identical with our statute, in Tremper v. Tremper, 39 Cal. App. 62, 177 Pac. 868, 869, we find this language:

“The plaintiff’s duty toward his children is to maintain them ‘during their minority.’ As each child attains his majority, that duty will terminate.”

Complainant’s contention that the incorporation in the decree of the words “until the further order of the court” vested the court with authority to enter the order for support of the adult daughter is absolutely without merit. The inclusion of these words contained no grant of authority the court did not have without them. If they had been omitted the court could have exercised its authority just as fully and completely for the care and support of minor children, and no language used in the decree could possibly confer jurisdiction on the court to order support, in a divorce proceeding, for an adult daughter. In the language of the court in the Boehler case, supra, the attempt of the chancellor to order such support “was worse than mere error. It was extrajudicial. It was and is a nullity.” Complainant is not without a remedy if the facts as to her daughter’s physical condition or inability to care for herself justify such action. She may proceed against the child’s father in the county court under the “Pauper” statute. The Boehler case, supra, passed squarely on this proposition.

The chancellor apparently was of the opinion that the court had neither authority nor jurisdiction to order support for the adult daughter inasmuch as he confirmed the order entered August 4, 1932, discontinuing payments by the father for the daughter, and directed in the order appealed from that the father should make no payments for the daughter’s support from and after August 4, 1932. The order against the father for the payment of $752 for the period from September 1,1931, until August 4,1932, was apparently predicated on the fact that the father had made no motion for the discontinuance of the payments for the support of the daughter, after she had reached her majority, and prior to August 4, 1932. It is true that the father, voluntarily and gratuitously, made -payments for his daughter’s support for several months after she attained her majority, but this in no way bound him to continue such payments. The chancellor was clearly in error in finding the father liable for $752 - for the above mentioned period because of his failure to file such motion. Such motion was entirely unnecessary.

Our attention has been called to the case of Freestate v. Freestate, 244 Ill. App. 166, which was decided on other grounds but in which the court, after reciting that the child who was 23 years of age had been an invalid since she was two years old, expressed the opinion that in that case, in the event a proper showing was made, it had authority to require the father to contribute to the support of his invalid child although she was 23 years of age. In that case the court’s conclusion was presumably based on the theory that once a court of equity obtained jurisdiction of the cause on any equitable ground'it retained jurisdiction for the purpose of avoiding a multiplicity of actions and doing full and complete justice between the parties. This conclusion would be justified if the jurisdiction of the court in a divorce proceeding came under its general equity powers, but it does not. The jurisdiction of courts of equity to hear and determine divorce cases is conferred only by statute, and while a court of equity may exercise its powers as such within the limits of the jurisdiction conferred, such jurisdiction depends entirely upon the grant of the statute. (Smith v. Johnson, 321 Ill. 134.) Inasmuch as it is our opinion that the divorce statute did not contemplate the support of any but minor children, we are unable to agree with the conclusion reached by the court in the Freestate case, supra.

Part of the relief prayed for in defendant’s petition was that an order be entered satisfying the decree of divorce because its terms had been fully complied with. Such an order is useless and unnecessary. Payments for the support of the child ceased by operation of law when the child .reached her majority.

Allowance for solicitors’ fees in this cause must fall with the disallowance of complainant’s claim for the support of her adult child.

The motion of complainant heretofore made to dismiss the appeal of defendant, which was reserved, is denied.

For the reasons indicated herein the order of the circuit court is affirmed as to that part of the order quashing the writs of attachment, and reversed and remanded with directions to vacate that part of the order providing for the .payment of $752 for support of the adult daughter and $200 for solicitors’ fees.

Affirmed in part, reversed in part, and remanded with directions.

Gridley and Scanlan, JJ., concur.