author: Mr. Justice Wilson

text:
    Douglas Loan and Mortgage Company, Inc., Plaintiff in Error, v. Ray Isenberg et al., Defendants in Error, Consolidated with Herman Brams, Plaintiff in Error, v. Foreman Trust and Savings Bank et al., Defendants in Error. Continental Illinois Bank and Trust Company, Defendant in Error.
    Gen. No. 36,758.
    Opinion filed May, 2, 1934.
    Rehearing denied May 16, 1934.
    Welch & Hoffman, for plaintiff in error.
    Mater, Meyer, Austrian & Platt, for defendant in error; M. Paul Noyes, of counsel.
   Mr. Justice Wilson

delivered the opinion of the court.

This is a writ of error sued out by Herman Brams to review an order of the circuit court directing the Union Bank of Chicago, a receiver in a junior foreclosure suit, to pay to itself as receiver in a foreclosure of a senior mortgage, certain moneys collected by it while acting as receiver in the foreclosure suit brought by the junior mortgagee. The appeal also seeks to have reviewed an order entered denying a motion to vacate the first order.

The reasons advanced for the reversal of the original order are equally applicable to the second motion to vacate that order. From the facts it appears that there were three mortgages against the property. The original bill to foreclose was filed by the third mortgagee and on November 22, 1930, the Union Bank of Chicago was appointed as receiver. Thereafter, on December 1, 1930, the complainant here, Herman Brams, filed his bill to foreclose the lien of his second mortgage against the same property and on the same day procured the entry of an order extending the receivership for his benefit. These proceedings were consolidated on December 3, 1930.

The original bill filed in the cause prayed for the appointment of a receiver with power to collect the rents, to pay same to the persons entitled thereto in reduction of their indebtedness, to pay the taxes and with such other powers as would be incidental to the receivership. Subsequently, on April 3,1931, the Continental Illinois Bank & Trust Company filed its bill to foreclose its first mortgage on the property in question and on April 27, 1931, procured the appointment of the Union Bank of Chicago as receiver in its then pending suit. On or abont May 9,1931, the Continental Illinois Bank & Trust Company, the complainant in the first mortgage foreclosure suit against the same property as that involved in the foreclosure suit brought by the second and third junior mortgagees, appeared in the latter case and filed its petition asking' to have the money in the hands of the receiver in the prior suit turned over to its receiver in the action in the foreclosure suit brought by it, the Continental Illinois Bank & Trust Company, and on May 9,1931, such an order was entered by the chancellor. The order was based upon the proposition, as set out in the intervening petition, that the premises were sold for the 1928 taxes and that the intervening petitioner, Continental Illinois Bank & Trust Company, had paid out the sum of $1,218.95 to redeem the property from such sale, and should be reimbursed therefor out of the moneys collected by the receiver in the original foreclosure proceeding. At this time the Union Bank of Chicago, the receiver in the first suit, had in its possession the sum of $742.05, which it had collected from the rents, issues and profits of the property. The chancellor granted this petition and ordered the money paid for the benefit of the intervening petitioner.

It is unquestionably the law in this State that the appointment of a receiver in a proceeding to foreclose the lien of a junior trust deed perfects an equitable lien in favor of the junior incumbrancer upon the rents, issues and profits, to the exclusion of a senior incumbrancer who is not a party to the foreclosure proceedings. Cross v. Will County Nat. Bank, 177 Ill. 33; Sullivan v. Rosson, 223 N. Y. 217.

It is insisted, however, by the intervening petitioner that when it paid the taxes in question it became subrogated to the lien rights of the State for taxes. This is based on the assumption that taxes are a prior and superior lien to all other liens against the property. This statement is correct and the senior mortgagee had the right to pay taxes and to acquire a lien by reason of the payment therefor against the property. In our opinion, however, this payment does not give the senior mortgagee the same rights as the State, but its lien right takes the same character as that previously held by it. Pratt v. Pratt, 96 Ill. 184; Vincent v. Moore, 51 Mich. 618; Horrigan v. Wellmuth, 77 Mo. 542. In other words, the amount paid for taxes by the senior mortgagee is added to the amount of its principal sum as stated in the mortgage or trust deed and upon foreclosure it is entitled to be reimbursed as to the total amount. This additional amount, represented by the tax as paid, is also secured by the senior mortgage and hence in that regard a senior lien but of the same character, and with the same security, viz., the first mortgage. It is insisted however that the original bill asked for the appointment of a receiver with power “to pay taxes” and was filed for the benefit of all parties interested. The right to pay taxes was extended to the receiver by the order of its appointment and not to the senior mortgagee. The prayer of the original bill stated that it was filed for the benefit of all parties, but in our opinion this was limited to all parties to the proceeding. The action to foreclose by the senior mortgagee was a separate and distinct action and started sometime after the original receivership.

The case of Frankenstein v. Hamburger, 76 N. Y. S. 818, cited by the intervening petitioner in support of its proposition that it had a right to participate in the funds, was one wherein the senior incumbrancer was a party to the original proceeding. Sullivan v. Rosson, 223 N. Y. 217. The case of Colorado Wool Marketing Ass’n v. Monaghan, 66 F. (2d) 313, was where money was advanced to the receiver to carry on the receivership.

In the view we take of the facts and the law pertaining thereto, the junior incumbrancer was entitled to the rents, issues and profits up to the time of the appointment of the receiver at the instance of the senior mortgagee.

For the reasons "stated in this opinion the order of the circuit court of May 9, 1931, directing the receiver to pay the sum of $742.05 to the Continental Illinois Bank & Trust Company, is reversed.

Order reversed.

Hall, P. J., and Hebel, J., concur.


source: Caselaw Access Project

author: Mr. Justice Wilson delivered

license: Public Domain

text:
    The People of the State of Illinois ex rel. Oscar Nelson, Auditor of Public Accounts, Complainant, v. Chicago Bank of Commerce, Defendant. Valentine Gits, Guardian, Appellee, v. Alfred K. Foreman, Receiver of Chicago Bank of Commerce, Appellant.
    Gen. No. 37,009.

      Opinion filed May 2, 1934.
    Rehearing denied May 16, 1934.
    Schuyler, Weinfeld & Hennessy, for appellant; Theodore E. Zahler and Lawrence Nelson, Jr., of counsel.
    Daniel M. Dever and James-T. Moore, for appellee; Daniel V. Gallery, of counsel.
   Mr. Justice Wilson delivered

the opinion of the court.

Valentine Gits, the guardian of the estate of Paulina Gits, a minor, filed her intervening petition in the liquidation proceedings of the Chicago Bank of Commerce, asking to be declared a preferred creditor as to the assets of the bank because of a deposit of her ward’s funds in the sum of $4,048.32, made by her as guardian. The original deposit was made February 17, 1930, and constituted the sum of $6,370.71. This deposit was in the name of the estate of Paulina Gits, a minor by Valentine Gits, guardian, and the deposit was made in the Union Bank of Chicago, which issued its passbook evidencing the fact that the same had been deposited subject to the joint control of the guardian, Valentine Gits, and the surety company, Fidelity Casualty Company of New York, the surety for the guardian. All withdrawals were signed by the guardian and countersigned by the surety company. This deposit was made without an order of the probate court and, so far as the record discloses, on the guardian’s own initiative. Moneys were drawn from this account from time to time and sometimes on orders of the probate court, until the balance remaining on hand at the time of the institution of this proceeding was $3,848.32.

On October 13,1931, the Chicago Bank of Commerce, a corporation, assumed the deposit liability of the Union Bank of Chicago and this guardian’s account was transferred from the Union Bank of Chicago to the Chicago Bank of Commerce, which issued its passbook No. 27773 to the guardian.

June 24, 1932, the Chicago Bank of Commerce was closed and on June 28, 1932, Alfred K. Foreman was appointed receiver and is now acting as such.

On June 23,1932, a check for $200 was drawn against said account and returned unpaid, which, together with the sum of $3,848.32, shown as the balance, makes a total sum of $4,048.32, claimed by the claimant, Valentine Gits, to be a trust fund.

The matter was referred to a master in chancery who held that the deposit was a trust fund and recommended that an order be entered holding the bank as trustee for the benefit of the minor under the provisions of the Trust Company Act. This finding was approved by the chancellor and a decree entered finding that this deposit was a trust fund and directing the receiver to pay such deposit pro ratably with all other preferred claims in due course of administration.

It is agreed by the parties that both the Union Bank of Chicago and the Chicago Bank of Commerce had complied with an act in force July 1, 1887, entitled, “An Act to provide for and regulate the administration of trusts by trust companies,” par. 345, chap. 32, Cahill’s Illinois Revised Statutes, 1933.

The claimant contends first that the defunct banks, both the Union Bank of Chicago and the Chicago Bank of Commerce, having qualified under this act, received the deposit as trustee and with knowledge of the fact that the deposit was made by a guardian of a minor’s moneys. The act provides as follows:

346. Trust Company May Be Receiver, Assignee, Administrator, Guardian.] § 2. Whenever application shall be made to any court in this State for the appointment of any receiver, assignee, guardian, conservator, executor, administrator or other trustee, it shall be lawful for such court to appoint any such corporation as such trustee, receiver, assignee, guardian, conservator, executor or administrator: Provided, any such appointment as guardian or conservator shall apply to the estate only, and not to the person.

“Any court having appointed and having jurisdiction of any receiver, executor, administrator, conservator, guardian, assignee or other trustee, upon the application of such officer or trustee, or upon the application of any person having an interest in the estate administered by such officer or trustee, after such notice to the other parties in interest as the court may direct, and after a hearing upon such application, may order such officer or trustee to deposit any moneys then in his hands, or which may come into his hands thereafter, and until the further order of said court, with any such corporation, and upon deposit of such money, and its receipt and acceptance by such corporation, the said officer or trustee shall be discharged from further care or responsibility therefor. Such deposits shall be paid out only upon the orders of said court. ’ ’

The act further provides that upon proper application and after hearing, the probate court may order the officer or trustee to deposit funds for safe-keeping with a bank duly qualified to act under the Trust Act and reduce the bond of such officer to cover only such portion of the estate as remains in his or her hands. It is admitted that no such hearing was had before the probate court and no order entered therein directing the guardian to deposit the moneys with a trust company or entering an order discharging the trustee or guardian from further responsibility. So far as the record discloses the deposit was made by the guardian on her own responsibility. As a precautionary measure, the surety on her bond sought and obtained the right to countersign all checks drawn against the account. As the record stands the minor is still protected by the bond of her guardian.

The case of People ex rel. Nelson v. Citizens Trust & Savings Bank, 272 Ill. App. 444, cited as an authority on behalf of the claimant, was a case where the guardian had deposited funds pursuant to an order of court on an application by the administrator for the purpose of securing his discharge as such and relieving him from liability. No such order appears in this proceeding. The guardian here did not seek to avail herself of the provisions of the statute and, consequently, cannot now avail herself of its protection.

The banks in question were engaged in a general banking business as well as that of trust companies. The fact that the deposit was in the name of a guardian for a minor did not change the character of the deposit. A guardian has a right to make a general deposit of fnnds in her hands in a bank and, unless special arrangements are made, the deposit is a general one and the guardian assumes the liability in case of the insolvency of the bank.

The Supreme Court of this State in the case of People ex rel. Nelson v. Home State Bank of Grant Park, 338 Ill. 179, in its opinion, says:

“The plaintiff in error contends that the money in question in this case constitutes a trust fund, that the bank knew it was a trust fund, the account was an official account, and therefore the deposit created a trust relation between the bank and the plaintiff in error. Deposits in a bank may be either general or special. A general deposit is a deposit generally to the credit of the depositor, to be drawn upon by him in the usual course of the banking business. ... A special deposit is a deposit for safe keeping, to be returned intact on demand, or for some specific purpose not contemplating a credit on general account. . . . A deposit in a bank is presumed to be a general deposit in the absence of an agreement to the contrary.

“A fiduciary may deposit trust funds as a general deposit. The fact that the funds so deposited are trust funds and known by the bank to be so does not make the deposit special. In the absence of evidence making it a special deposit the depositor simply becomes a creditor of the bank, standing upon the same footing as other general creditors and entitled to no preference, the bank simply becoming indebted to him in his representative capacity. . . . The depositor may be described in the pass-book, certificate or receipt which evidences his deposit, as a trustee, executor, administrator, guardian, agent, treasurer, manager, or by some other word or words indicating his fiduciary character, but this will not, alone, render the deposit special.”

It is next insisted that the deposit of the minor’s funds was a loan to the bank and, having been made without security, was in violation of par. 22, chap. 64, Cahill’s Ill. Rev. Stat. 1933. This Act is the one upon which this claim is based and is known as the Guardian and Ward Act. Section 22 of that Act provides:

“if 22. Investments — Guardian’s Duty.] It shall be the duty of the guardian to put and keep his ward’s money at interest upon security to be approved by the court, or by investing, on approval of the court, the same in United States bonds, or in the bonds of any county or city which are not issued in aid of railroads, and where the laws do not permit said counties or cities to become indebted in excess of five per cent of the assessed valuation of property for taxation therein, and where the total indebtedness of such county or city does not exceed five per cent of the assessed valuation of property for taxation at the time of such investment. Personal security may be taken for loans not exceeding one hundred dollars. Loans upon real estate shall be secured by first mortgage thereon and not to exceed one-half the value thereof. No mortgage loan shall be made for a longer time than five years nor beyond the minority of the ward: Provided, the same may be extended from year to year without the approval of the court. The guardian shall be chargeable with interest upon any money which he shall wrongfully or negligently allow to remain in his hands uninvested after same might have been invested. ’ ’

From a reading of this act it is apparent that the duty of investing the funds of the ward devolves upon the guardian and that the investments should be made upon an order of the court or on the court’s approval in certain classified investments. There is nothing so far as is discernible in this act which would prevent a guardian from banking funds belonging to the ward, pending the receiving of a proper order of the probate court authorizing investment by the guardian. It is not conceivable that a guardian would be required to carry large sums of money about his person or to keep such funds in his possession until a proper and suitable investment could be found. The law does not contemplate absurdities and in our opinion was not intended to cover temporary deposits made pending the obtaining of a proper order of the probate court. If the guardian neglects to invest the funds and permits them to remain for a period of time in a bank as a deposit, the risk is that of the guardian.

In the case of People ex rel. Russell v. Farmers State & Savings Bank of Grant Park, 338 Ill. 134, funds were deposited in the savings department of the bank and a passbook issued to the depositor as treasurer. In that case it was the contention of the complainant that he was entitled to a preference because the money deposited by him constituted a trust fund, but it was held that unless it became a trust fund by special agreement or under circumstances sufficient to create a trust, it was a- general deposit and the bank became the debtor of the depositor to the extent of the deposit and to that extent the depositor became the creditor of the bank. Deposits in a bank are not loans to the bank and, consequently, cannot be investments. The term “deposit” has a well accepted meaning in the banking business and money deposited is payable upon demand, nor is there any difference between a deposit in a checking account and one in a savings account. McCormick v. Hopkins, 287 Ill. 66; Emerson v. North American Transportation & Trading Co., 303 Ill. 282.

We are referred to the cases of State ex rel. First Nat. Bank of Crete v. Bartley, 39 Neb. 353, and later Nebraska cases to the effect that a deposit being made of State funds contrary to the statute, such funds were considered as trust funds when taken by the bank as deposits contrary to the statute. The Supreme Court of this State in the recent case of People ex rel. Nelson v. Peoples State Bank of Maywood, 354 Ill. 519, had occasion to consider this question. From the facts in that case it appears that the Village of Maywood sought to have certain funds deposited by it in the defunct bank declared a preferred claim on the ground that they were trust funds. It appeared that there was a legal ordinance in Maywood which required a bank to execute an indemnity bond to the village in order to qualify as a depositary of village moneys received and deposited by the treasurer from time to time. It was the contention of the village that the acceptance of deposits without complying with the ordinance created it a trustee ex maleficio and that, therefore, these funds so deposited by the treasurer of the Village of Maywood should be declared trust funds. It was held that the omission to observe a mandatory provision of a statute or ordinance renders unlawful the act or proceeding which it governs or to- which it relates, and that a deposit wrongfully accepted because of the failure of the bank to furnish the indemnity bond as required, constituted it a trust fund; th'at such funds deposited in violation of. law did not become assets of the bank but are impressed with a constructive trust. It will be noted, however, that in cases of this class the duty is imposed upon the bank and that in order to accept funds of a certain class it is required to comply with certain laws. In the case at bar, however, the prohibition does not run against the bank but the statutory requirement is placed upon the guardian.

In view of the fact that the Supreme ourt of this State has recognized that the deposit has not the legal effect of a loan, it necessarily follows that a deposit has not the legal effect of an investment. There is nothing in the Guardian and Ward Act, Cahill’s St. ch. 64, which prevents a guardian from depositing money in a bank, nor is there anything in that act which prevents such a bank from receiving such a deposit.

In the cases cited by the claimant the law required of the depositary some positive act on its part before accepting the deposit. There is no provision in the Guardian Act nor in the Banking Act requiring a banking corporation to do anything in compliance with the law before becoming a depositary of guardian funds. In this respect the case at bar is very different from those cited in support of the position taken by the claimant. Neither is there any order of court directing the guardian to deposit the funds of her ward in either of the institutions involved in this proceeding.

We are unable to agree with the conclusion reached by the chancellor and for the reasons stated in this opinion, the decree of the circuit court is reversed.

Decree reversed.

Hall, P. J., and Hebel, J., concur.


author: Mr. Justice Wilsoh

text:
    Robert Hofeller and Toby Lewis, Appellants, v. General Candy Corporation et al., Appellees.
    Gen. No. 37,111.
    Opinion filed May 2, 1934.
    William Friedmah, for appellants.
    Walter Bachrach, for appellees; Walter Bachrach and Philip Glick, of counsel.
   Mr. Justice Wilsoh

delivered the opinion of the court.

This is an appeal from a decree sustaining a demurrer to the second amended bill of complaint filed in the cause and dismissing- the bill for want of equity. The bill charges that the complainants Robert Hofeller and Toby Lewis are the owners of 1,260 shares and 200 shares respectively of Class A stock of the General Candy Corporation, incorporated under the laws of the State of Illinois. The bill is filed on behalf of themselves and such other owners of Class A common stock of the corporation as may elect to join in the suit.

The bill further charged that the corporation was formerly known as the Universal Theatres Concession Company, a manufacturing and trading corporation, and that at its annual meeting of stockholders held February 21, 1929, it adopted a resolution changing the name to that of General Candy Corporation and at the same time increased the capital stock of the corporation from 40,000 shares of Class A common stock of the par value of $5 each to 150,000 shares of the par value of $5 each and decreased the Class B stock from 40,000 shares at the par value of $5 each to 5,000 shares at $5 each; that at said meeting it was recommended that a stock dividend be declared and issued in payment of all previous cumulated and unpaid dividends, which had accrued prior to July 1, 1929; that the holders of Class A stock should be entitled to receive when and as declared fixed dividends at the rate of $2.50 per share per annum. It was further provided that the dividend on the Class A stock should be paid before that on the Class B stock; that no dividend should ever be paid or declared except from the surplus and/or net earnings of the corporation nor unless the current earnings shall be equivalent to $5 a share on the Class A stock then outstanding and would not result in reducing the tangible book value of the Class A stock outstanding below $30 per share; that except with the consent of the holders of not less than two-thirds of the Class A stock, the corporation shall not sell, lease or exchange or in any manner dispose of its property or business as an entirety, or increase the amount of the capital stock or create any other class of stock which would impair the value of the Class A stock or consolidate or merge with other corporations or create any other funded debt secured by real estate; that in the event of involuntary liquidation or dissolution of the corporation the money shall be distributed by first paying to Class A stockholders $30 for each share of stock held by them, and secondly to the Class B stockholders at the rate of $30 for each share held by them and the balance of the assets of the corporation to be divided and distributed among the holders of all of the stock.

The bill further charges that the complainants purchased said stock with the understanding that they were to receive a dividend from the surplus or net earnings at the rate of $2.50 per share per annum; that there is now due and unpaid on Class A common stock a dividend for the last half of the year 1929 in the sum of $1.25; for the year 1930, $2 per share and for the year 1932 no dividends have been paid although a dividend of 25^ per share has been declared on the Class A stock, payable October 1, 1932; that the total cash dividends declared for the years 1930, 1931 and 1932 amount to about $1 per share; that on December 31j 1929, the surplus profits of the corporation were $475,506.93, and that the corporation and its subsidiaries had on hand in cash and in banks the sum of $93,930.84, and marketable investments of $27,863, with accounts receivable and inventories showing total current assets of $470,732 in addition to fixed assets of $299,989.81; that the good will, trade marks, options, leaseholds and similar items aggregated $325,000 and there was an additional investment in the Williamson Candy Co. of Brooklyn, New York, amounting to $124,740.42, so that the total net worth of the company in excess of liabilities amounted to $1,225,506.93. The bill further charges that on December 31, 1930, the balance sheet of the corporation indicated a surplus profit of $547,645.10, of which $203,224.50 was cash on hand and in banks, and marketable investments of $52,151.41, and that the total net worth of the company, after allowing for reserves for depreciation, was in excess of liabilities to the amount of $1,305,145.10; that on December 31, 1931, as shown by the consolidated balance sheet, after adding the surplus profits, cash on hand, marketable investments, less reserves for depreciation, the total net worth was $1,270,436.59; charges that at this time there was 114,795 shares of Class A stock and that the corporation had on hand sufficient to pay the required dividend of $2.50 per share; that on July 31, 1932, after allowing for all receipts, disbursements and investments there was available for dividends, without impairing the capital structure, the sum of $337,003.15, out of which a dividend of $2.50 per share could be paid, leaving $69,690.65 for working capital, exclusive of the accounts receivable and the inventories.

The bill further charges that in the year of 1925, Stein, Alstrin & Co. sponsored a deal in the stock of the General Candy Corporation, then known as the Universal Theatres Concession Company, and came into control and thereupon negotiated with the Williamson Candy Company, as a result of which George H. Williamson was made president of the General Candy Corporation and M. H. Sobel, vice president, and that thereupon the company became prosperous and accumulated a profit, but that the said George H. Williamson began to show a feeling of resentment and dissatisfaction by reason of his position in the company and began to plan to increase his power by causing a reduction of the outstanding shares of stock; that at a meeting of the stockholders held February 17, 1931, he controlled the board of directors and did not favor the declaration of a dividend in any sum commensurate with the earnings and surplus on hand; that said Williamson started a systematic system to purchase the outstanding stock of the corporation with corporate funds and as a result of which 31,705 shares of said outstanding stock were purchased by the corporation, although no authority was granted by the board of directors; that the record does show that at a purported special meeting of the board of directors held on December 16, 1931, authority was granted to the said Williamson to purchase 18,970 shares, but it is charged that no actual meeting of the board was held on said day; charges further that the total number of stockholders is about 200, many of whom hold small parcels of stock; charges that the company was possessed of certain securities which cost $54,778.30, and without any proper action on the part of the board of directors these securities were sold at a loss to the corporation of $18,983.83; charges that the said Williamson dominates the board of directors and some of the directors are dummies, and not holders of any considerable portion of the stock of the corporation; charges further that on July 19, 1932, complainants requested that the president declare a dividend and that thereupon the corporation declared a dividend in the amount, of 25 cents, payable October 1, 1932; charges that this amount is inequitable and unjust to the stockholders; charges that the Williamson Building Corporation is the owner of a certain building at 4701 Armitage avenue, Chicago, occupied by the said General Candy Corporation as a tenant; that the latter corporation holds a lease upon said building for a term of 10 years at an annual rental of $27,000 and holds an option to purchase the same at $480,000; that the said George H. Williamson and the members of his family own substantially all the shares of the Williamson Building Corporation and that by reason of his domination the said Williamson caused the General Candy Corporation to pay the sum of $10,750 as "advanced rent at the rate of $2,250 per month for the months of July, August, September and October during the year 1932 and $1,750 on account of the month of November, 1932; that said directors take the position that they control the General Candy Corporation and that they “will if they choose” use the surplus money in the exercise of its option to purchase the said building and that the said Williamson stated that “he will do so if the complainants keep on making trouble”; charges further that if this is done it will redound to the almost exclusive use of Williamson and the members of his family.

The bill prays for an answer but not under oath and seeks to discover the amount and value of the property, moneys, interest and securities, etc. of the defendant, General Candy Corporation, and that an accounting be taken and thereafter the board of directors be ruled to declare a dividend out of the surplus and profits to the Class A stockholders and that the directors be restrained from the further purchase of stock of the corporation with corporate funds or securities of other companies and from exercising the option to purchase the property of the Williamson Building Corporation. Attached to the bill as exhibit “A” is the balance sheet of the General Candy Corporation for December 31st of the years 1929, 1930, 1931 and 1932.

The second amended bill of complaint was filed May 25, 1933, and charges that the complainants were possessed of their stock for about three years last past; consequently it follows that their stock must have been purchased after the charged increase in the shares of the Class A stock and after the year 1925 when Stein, Alstrin & Co. attempted to sponsor the deal in the General Candy Corporation and after the month of March, 1929, when Williamson came into the control of the company through the reorganization by reason of the consolidation of the Williamson Candy Corporation and the Universal Theatres Concession Company. It is charged in the bill that the stock purchased by the corporation was over the period from January, 1931 to December, 1931, but there is no charge in the bill that Williamson or the directors of the corporation intended to make further purchases of such corporate stock by the corporation. Neither is there any direct charge in the bill, namely, that the directors intend to and will use the surplus money of the corporation in the purchase of the Williamson Building Corporation under the option granted to the General Candy Corporation. The only allegation is that the directors took the position that they will if they choose use the surplus money in the exercise of its option. The lease to this building on Armitage avenue owned by the Williamson Building Corporation was entered into June 1,1929, and contained the option of purchase which the defendant corporation at that time evidently considered of value to the company. It would not appear to be good business policy to make the purchase of this building at this time under present building conditions, but in view of the fact that there is no direct charge in the bill that this will be done, we are without power to draw inferences to that effect. It is charged that Williamson and his family and the directors control over 60,000 shares of the outstanding stock. As a matter of fact the officers and directors of the corporation who were made parties defendant to the bill evidently are possessed of, as charged in the second amended bill of complaint, in excess of 72,000 shares. While this gives these stockholders a dominant position in the company, this is not unusual. It also carries with it an added responsibility, and the heaviest loss, if any loss there should be by reason of the management of the defendants, would fall upon those charged in this proceeding. The main purport of the bill seems to be that the corporation having money on hand sufficient to pay a dividend, it should be required to do so.

In addition to the $1 cash dividend paid, it appears upon the face of the bill that, in what was known as the “flush” period of 1929, this corporation, as did many other corporations, declared a stock dividend evidently under the misapprehension that good times were to continue. If this stock dividend had not been issued, the amount of cash required to pay the regular annual dividend would not have been as great. The complainants represent practically a 1 per cent interest in the total Class A stock. This, however, would not deprive them of being heard in a court of equity if facts were charged in the bill showing that the directors were fraudulently operating the company for their own use or voting themselves salaries inconsistent with the earnings of the company or persisting in a course of operation which would ultimately result in such loss as would end in a forced liquidation. .Stripping the bill of complaint of all its verbiage, it is practically a request of the chancellor to compel the corporation to declare a cash dividend. Courts will not compel such action on the part of a corporation unless the withholding of the dividend is oppressive and entirely without merit. Courts of chancery will not concern themselves with the operations of a private corporation except on the ground of fraud or an impairment of the capital structure which would result in complete or very substantial loss. Gehrt v. Collins Plow Co., 156 Ill. App. 98.

Leaving out of consideration the surplus in the hands of subsidiary companies in which the parent company, one of the defendants here, owns stock, we can see no reason for compelling a dividend, particularly in view of the present existing conditions and the present attitude of all corporations to conserve as, far as possible its working capital for future contingencies. The question of a dividend at this time is one which rests wholly in the business judgment of the board of directors and a court of chancery should not substitute its judgment for that of men actively engaged in business in the community. Hall v. Woods, 325 Ill. 114.

While the by-laws may provide for a fixed dividend per annum on a certain class of stock, there may come a time, as there already has, when it would be fatal to the best interests of all the stockholders to part with ready cash. In fact it might be very inadvisable inasmuch as there would be a possibility of the loss of the entire principal. Gibbons v. Mahon, 136 U. S. 549.

We are in accord with the position taken by the chancellor in sustaining a demurrer to the amended bill of complaint and for the reasons stated in this opinion the decree of the circuit court is affirmed.

Decree affirmed.

Hall, P. J., and Hebel, J., concur.


text:
    The People of the State of Illinois ex rel. O. P. Decker et al., Appellees, v. City of Park Ridge et al., Appellants.
    Gen. No, 37,162.

      Opinion filed May 2, 1934.
    Rehearing denied May 16, 1934.
    Henry L. Blim, for appellants.
    Samuel A. & Leonard B. Ettelson, for appellees; Edward C. Higgins and Herbert A. Salzman, of counsel.
   Mr. Justice Wilson

delivered the opinion of the court.

The relators, Decker and others, filed their petition for mandamus to compel the defendants, City of Park Ridge, Wm. A. McKee, as mayor, Arnold H. Hediger, as city treasurer, and Ian Glass, city clerk, to pay to them as the holders of certain improvement bonds and interest coupons, the money due which it is charged has been collected and is now in the hands of the defendants. General and special demurrers were filed by the defendants to this petition and overruled and the defendants having elected to stand by their demurrers, judgment that the writ of mandamus issue was entered from which judgment this appeal has been perfected.

The relators, Decker, Ederheimer, Gatzert, Kuppenheimer, Leopold and East charge in their petition that they constitute a committee for the protection of the holders of certain six per cent local improvement bonds of the City of Park Eidge, issued to anticipate the collection of special assessment No. 268 of the City of Park Eidge; that they held said bonds which have been deposited with the Straus National Bank & Trust Company of Chicago, as depositary, under and by virtue of a certain written instrument, a copy of which is attached to and made a part of the petition. This written agreement between the bondholders is entitled “Bondholders’ Agreement” and provides that, whereas said obligations are owned by different holders and the interest on said bonds is now in default and difficulties have arisen in the collection of assessments for the purpose of paying said bonds, therefore, it is agreed among the bondholders depositing their obligations under this agreement that the bondholders’ committee consisting of relators shall have full power to conduct negotiations looldng toward the settlement or collection of said obligations and shall be vested as trustees with full legal title to all the obligations deposited under this agreement with power in its own name to take or cause to be taken steps or proceedings necessary to enforce the rights of the depositing bondholders and to that end is empowered to institute, maintain and prosecute any and all proceedings at law and in equity.

The petition charges that under and by virtue of said agreement there has been deposited with the Straus National Bank & Trust Company of Chicago, now known as the American National Bank & Trust Company of Chicago, as depositary, certain improvement bonds, as follows:

“Improvement Bond No. D-32, City of Park Ridge, Series A-2, in the amount of $500;

“Improvement Bond No. M-95, City of Park Ridge, Series A-2, in the amount of $1,000;

“Improvement Bond No. M-94, City of Park Ridge, Series A-2, in the amount of $1,000.”

The petition further charges that certain interest coupons are also due and unpaid; charges that these improvement bonds were issued to anticipate the collection of a part of the second instalment of special assessment No. 268, levied for the purpose of paving Sibley street and other streets in the City of Park Ridge; charges that the interest coupons were issued for the payment of interest on said improvement bonds. Said petition sets out in haec verba the bonds in question, from which it appears that said bonds and the interest are payable out of the instalments when collected.

The petition further charges that said improvement bonds and interest coupons are signed in the name of The City of Park Ridge, by Robert E. McLain, mayor, and attested by William J. Becker, city clerk; charges that the City of Park Ridge is a municipal corporation organized and existing under the laws of the State of Illinois; charges that said bonds were payable to bearer on the 15th day of December, 1931; charges that the paving of Sibley street and other streets in the City of Park Ridge has been completed pursuant to and under the aforesaid proceedings; charges that according to the terms and provisions of' said improvement bonds the principal became and was due and payable to bearer on the 15th of December at the office of the treasurer of said city of Park Ridge; charges that the relators are the holders of certain bonds and setting them out and describing them in detail; charges that the relators are informed and believe and so state the fact to be that the City of Park Bidge, Wm. A. McKee, mayor, Arnold H. Hediger, city treasurer, and Ian Glass, city clerk, or any of them have collected some or all of that part of the second instalment of special assessment No. 268 of said City of Park Bidge to anticipate the collection of which the improvement bonds and interest coupons were issued by said city; charges that the said defendants have also collected that part of the third instalment of special assessment No. 268 of said City of Park Bidge to anticipate the collection of which certain other bonds (enumerated) were issued by said city; charges that the money collected by said defendant was received and is now held by said defendants as a special fund for the payment of said improvement bonds and that it became and now is the duty of said defendants and each of them to make payment of the amounts designated at the office of the treasurer of the City of Park Bidge and to pay relators for said improvement bonds and interest coupons upon presentation thereof to said defendants at said office of said treasurer; charges that demand has been made and that the defendants and each of them have refused to comply with the demand and pay said bonds and interest coupons; prays that a writ of mandamus issue directed to the said defendants commanding them and each of them to pay the amount designated and set up in the petition upon the presentation of the bonds.

Defendants contend, (1) that the committee as such has no right to maintain the action; (2) that the allegations of the petition are not sufficiently definite upon which to base a liability which would require a response to the petition; (3) that the amount due petitioners could only be ascertained by an accounting and that mandamus is not a proper action; and (4) that the petition does not sufficiently describe with accuracy the liability of the different persons named as defendants.

We see no force in the first position taken by the defendants, namely, that the committee is not a proper entity which is entitled to maintain the action. Under the written agreement the committee was vested with the title to the bonds with full power and authority to act in the collection of the amount due as shown by the obligations. The petition for the writ asks that they be paid upon presentation and the defendants were amply protected under the written agreement in paying the obligations, accepting, and canceling them. Upon a hearing the allegation of the petition that the committee is empowered to act, would, necessarily, have to be proven and the holders of the bonds and interest coupons would be estopped from afterwards denying the power of the committee. We see no reason why a number of bondholders, for the purpose of saving expense and expediting collection, could not appoint an individual or a committee, with full power to act. The case of People v. Peoples Stock Yards State Bank, 344 Ill. 462, cited by defendants, in our opinion is not germane to the question.

We se.e no force in the second position taken by the defendants in that the petition is indefinite. It is not tested upon answer but upon demurrer, and the allegations set forth are admitted to be true. It alleges the ownership and possession of the bonds, the power to act, the collection of the funds by the city through its properly constituted officers and demand for payment and its refusal.

Answering the third objection it is apparent from a reading of the petition that the charges directly made were that the defendants have collected the money and have in their possession sufficient funds to pay the particular bonds set out in the petition together with the interest coupons. It is true that the petition charges that they have collected “some or all of that part of the second installment of special assessment No. 268.” It is not incumbent upon petitioners to wait until the entire amount is collected, but they should be entitled to be paid pro rata that part of the indebtedness collected which is represented by the bonds and interest coupons held by the petitioners. Rothschild v. Village of Calumet Park, 350 Ill. 330.

It is true that so far as the fourth contention of the defendants is concerned that there may be a presumption that the mayor and city clerk have nothing to do with the money after collection. The money is or should be, if collected, in the hands of the city treasurer. By their demurrers, however, these defendants have admitted the charge in the petition. By answer they could have purged themselves of any responsibility and been dismissed out of the proceeding. Having failed to answer, however, it may be as charged in the petition that these particular defendants, namely, the mayor and city clerk, may have some active duty in connection with the distribution of the funds which might be necessary to complete relief. The City of Park Ridge acts through its officers and they have been made parties defendant. No harm can be done by including them as parties defendant to the petition.

We see no reason for disturbing the order of the circuit court overruling the demurrers and entering judgment upon refusal to answer.

For the reasons stated in this opinion the judgment of the circuit court of Cook county is affirmed.

Judgment affirmed.

Hall, P. J., and Hebel, J., concur.


author: Mr. Presiding Justice Hall

text:
    The West Side Trust and Savings Bank of Chicago, Appellant, v. John Kempston et al., Defendants. Earl Morris, Intervening Petitioner, Appellee.
    Gen. No. 37,438.
    Opinion filed May 10, 1934.
    Rehearing denied May 21, 1934.
    John M. Lee and Carl M. Loos, for appellant.
    Maxwell L. Rubin, for appellee.
   Mr. Presiding Justice Hall

delivered the opinion of the court.

This is an interlocutory appeal from a decree appointing a receiver for real estate in a proceeding brought to foreclose a trust deed given to secure the payment of bonds. A motion to dismiss the appeal has been reserved to the hearing.

The receiver was appointed on the intervening petition of a minority bondholder filed in the foreclosure proceeding. There was no showing made other than by the alleged facts set forth in the petition.

On November 29, 1932, the West Side Trust and Savings Bank, complainant in this foreclosure proceeding, filed its bill as trustee under a trust deed given to secure the payment of certain bonds, executed by John Kempston and Nellie Kempston, his wife, who were also the makers and signers of the trust deed. It is alleged in the bill that defendants had defaulted in the payments agreed by them to be made, and in other particulars, including the failure to pay taxes levied on the mortgaged premises. The trustee had entered into and was in possession of the premises at the time the bill to foreclose was filed. Of the $140,000 of bonded indebtedness which the trust deed was given to secure, as shown by the bill, $15,000 had been paid, leaving a balance due of $125,000 of bonds, in addition to interest and taxes unpaid, of which bonds the intervening petitioner is alleged to be the owner of $8,000' thereof.

This trust deed provides among other things that “The trustee accepts the trust imposed upon him by this indenture and certifies said bonds upon and subject to the following expressed terms and conditions: Trustee shall not be responsible for or by reason of any recitals herein or in said bonds, nor . . . for keeping down or paying taxes, charges, assessments or liens on the same or otherwise as to the maintenance of the security hereof, or for the use of the bonds secured hereby, or the proceeds thereof, or liable for the non-compliance with any acts, rules, regulations, orders and directions of any legislative, executive, administrative or judicial body applicable to the mortgaged property, or any part thereof, or to this indenture, or the bonds described in and secured hereby. . . . The trustee shall not be required to take notice of or be deemed to have notice of any default hereunder unless specifically notified in writing of such default by the holder of one or more of the bonds issued and outstanding hereunder, and all notices or other instruments required by this indenture to be delivered to the trustee must, in order to be effective, be delivered at the office of the trustee. In case the trustee hereunder shall resign, be removed, or be dissolved or otherwise become incapable of acting hereunder, a successor or successors may be appointed by the holder or holders of a majority in amount of the bonds then outstanding hereunder, by an instrument or concurrent instruments in writing didy signed by them and of record in the Recorder’s office of the county or counties wherein the mortgaged property is located; or in case said bond holder or holders shall not appoint a new trustee or trustees, as aforesaid, within thirty days after any such vacancy shall occur, then the holder or holders of any one or more of ^said bonds may apply to any court in the county or counties tvherein said mortgaged property or any part thereof is located, having general chancery jurisdiction for the appointment of a new trustee hereunder, upon such notice to such person or persons as the court may direct, or upon such notice as shall be in accordance with the statute or rules of such court.”

On January 24, 1934, Earl Morris, by leave of court entered on that day, filed an intervening petition in the cause, wherein, among other things, it is recited that he is the owner of $8,000 of the bonds secured by such trust deed, that the foreclosure proceeding hereinbefore referred to had been instituted; that subsequent to the filing of the bill of complaint in the cause, the complainant, the West Side Trust and Savings Bank, as trustee, entered into possession of the premises conveyed by said trust deed and collected the rents, issues and profits therefrom; that subsequent thereto on or about May 1, 1933, the West Side Trust and Savings Bank closed its doors and ceased doing a general banking business; that thereafter by order of the auditor of public accounts for the State of Illinois, William L. O’Connell was appointed receiver for the West Side Trust and Savings Bank; that by reason thereof and by reason of the fact that the West Side Trust and Savings Bank is no longer conducting a general banking business, it has become incapable of performing the duties necessarily attendant upon the office of trustee under the trust deed, especially in so far as it is and has been for a long time past, incapable of properly operating and managing the premises involved as a trustee in possession; that the premises involved were forfeited for the general taxes for the year 1928; that there now remains due for general taxes levied against said premises taxes for the years 1929, 1930 and 1931; that the West Side Trust and Savings Bank, as trustee, knew for a long period of time prior to the filing of the bill of complaint in said cause that the taxes were due and owing, but remained unpaid, and yet this trustee failed to notify the bondholders of the tax situation so that the bondholders might protect their interest in the premises; that notwithstanding the fact that this trustee knew of the tax defaults it permitted and caused to be made extensions of the maturity dates of certain bonds described ; that the petitioner and other owners and holders of bonds maturing on and after October 20, 1932, were not notified that such bonds were not paid and that said bonds had been extended; that the trustee was wilfully negligent and was guilty of wilful misconduct in failing to notify and apprise the petitioner and other bondholders that said bonds were not paid, but were extended; that because of the above representations, the bonds described should be declared to be subordinated to the bonds held by petitioner and other bondholders; that the West Side Trust and Savings Bank, a corporation, individually, subsequent to the issue of the bonds described, purchased or paid for certain bonds which are now in the possession of said bank, and of which it now claims to be the owner, and that all such bonds should be determined to be subordinated to the lien of the trust deed as security for the bonds held by the petitioner Morris; that the trustee has been negligent in failing to proceed with the foreclosure proceeding instituted, and in failing to put the cause at issue and in failing to proceed to decree and sale; that it would be to the best interest of all the bondholders to have the proceeding determined by the entry of the decree of sale, and by having a sale of the property; that the premises are improved with a three-story brick building located at 201-211 South Lavergne avenue, Chicago; that the present fair cash market value of the property does not exceed the sum of $89,500; that there is due on account of bonds and interest coupons secured by the trust deed not subordinated by operation of law or otherwise, and upon general taxes an amount in excess of the sum of $125,000; that the premises are scant and insufficient security for the indebtedness; that waste has been and is being committed by reason of the prolonged nonpayment of taxes to the injury of the petitioner. The intervening petitioner prays that the West Side Trust and Savings Bank, trustee, be removed by the court, and that a successor in trust be appointed to properly protect the interest of the bondholders, and that pending the determination of the cause, a receiver be appointed to take possession and operate the premises. Notice was served on the solicitors for the complainant, trustee, on January 23, 1934, that this petition would be presented to the court the next day at 10 o’clock a. m. Thereafter, and without further showing, a hearing was had by the court on this intervening petition, and an order was entered in the circuit court of Cook county on January 24, 1934, appointing E. H. White as receiver of the premises. In and by the decree, the court made the following finding of fact: “That there has been a default in the payment of the general taxes levied against said property for the years 1928 to 1931, both inclusive; that there is due and owing on the trust deed herein sought to be foreclosed in excess of $125,000; that the present fair cash market value of the said premises does not exceed $39,500, and that said premises are scant and insufficient security for the indebtedness secured by said trust deed.” WThile the intervening petition alleges that the property in question is worth $89,500, and nothing was before the court on the application for the appointment of a receiver other than the petition, the court found the property to be worth $39,500, $50,000 less than the petition alleges it to be worth.

Among other grounds urged by the intervening petitioner for the appointment of a receiver is one to the effect that the West Side Trust and Savings Bank had closed its doors and ceased doing a general banking-business; that a receiver had been appointed for the bank, and that such bank as. trustee is therefore incapable of performing its duties as such. The trust deed provides that in case the trustee should resign, be removed, or otherwise become incapable of acting, a successor trustee might be appointed by the holder or holders of the majority of the bonds then outstanding, and that in case the bondholders should not appoint a new trustee within 30 days after such vacancy should occur, then and in that case the holder or holders of any one or more of the bonds might apply to any court in the county where the mortgaged property is located, for the appointment of a new trustee upon such notice to the persons interested, as the court might direct. There is nothing in the record to indicate when this trustee became incapacitated, as alleged, except that in the intervenor’s petition it is recited that the West Side Trust and Savings Bank closed its doors and ceased doing a general banking business on or about May 1, 1933, that thereafter a receiver for the bank was appointed, and that it was, therefore, incapable of conducting a general banking- business. There is nothing in the intervening petition, nor in the finding of the court, to the effect that the property has produced any revenue out of which the trustee might have paid the taxes.

If the receiver of the bank was appointed, as alleged in the intervening petition, of which there is no finding by the court, the statute provides that ‘ ‘ as soon as can reasonably be done, he (meaning the receiver of the bank) shall resign on behalf of said bank all trusteeships . . . making in each case a proper accounting.” (Cahill’s Revised Statutes, 1931, ch. 16a, U11.) It is recited by appellant in his brief that the receiver of the bank was appointed on January 12, 1934. Presuming this statement to be correct, and it is not disputed by petitioner, then there is no showing that the receiver of the bank, even if appointed, as alleged, had the opportunity, between the time he was appointed on January 12, 1934, and January 24, 1934, when the receiver herein was appointed, to comply with the statute. If the appointment of a receiver for the bank created a vacancy in the trusteeship, as alleged, then the majority of the bondholders should have been given an opportunity to elect a successor trustee, as provided by the trust deed. The intervening petitioner was a party to the foreclosure suit, and presumably fully apprised of the situation, and he had his remedy under the terms of the trust deed to petition the court for the appointment of a new trustee, if the trustee under the trust deed was incapacitated, incompetent or derelict in its duties.

The intervening petitioner cites the case of Brown v. Foreman-State Trust & Savings Bank, 270 Ill. App. 631 (Abst.), as decisive of the question as to whether or not the appointment of a receiver for a bank which is acting as trustee under a trust deed ipso facto results in a vacancy in such trusteeship, and justifies the appointment of a receiver for the property held in trust. In that case, after the appointment of the receiver for the trustee bank, the court entered an order removing the bank as trustee and appointing a successor trustee. The bank trustee and other defendants appealed from that decree, thus staying the authority of the successor trustee to act, and as this court said in its opinion, thus “rendering necessary the appointment of a receiver pendente lite.” In the instant case, no such situation prevailed.

In Belofsky v. Johnson, 266 Ill. App. 351, a bill was filed to foreclose a trust deed, in which it was alleged that a vacancy had occurred by reason of the fact that the bank, trustee under the trust deed, had been closed by the auditor of public accounts, and a receiver appointed for such bank, and that the appointment had been confirmed by the superior court of Cook county. Upon this allegation, the superior court of Cook county appointed a receiver for the property involved. In the instant case there is no allegation in the intervening petition that the bank receiver’s appointment, if made as alleged, had been confirmed by the court, as required by statute, and no finding by the court to that effect. In the Belofsky case, supra, this court said: “We think it obvious that there was no vacancy in the trusteeship, and therefore the court should not have appointed a receiver of the premises. The parties ought not to be burdened with the expense of receiver’s and solicitor’s fees unless it is necessary under the law to do so.”

We are of the opinion that in view of the fact that the court in its finding held that the property in question was worth but $39,500, which is $50,000 less than the value thereof set up in the intervening petition, that the majority of the bondholders under the trust deed were given no opportunity to elect a new trustee, as provided by the trust deed, that the intervening petitioner, upon a proper showing, might have had a new trustee appointed, that the receiver of the trustee bank was given no opportunity to comply with the statute, providing for an accounting and resignation by such receiver of its trusteeship, that there was no evidence of any income to pay taxes, and finally, that the appointment of the receiver under the allegations contained in the petition was unwarranted and unjustified, that the decree of the circuit court of Cook county appointing such receiver should be and is reversed. In view of the holding of the court, it will be unnecessary to pass upon the motion to dismiss the appeal.

Reversed.

Wilson and Hebel, JJ., concur.


author: Me. Justice Huffman

text:
    Sarah Kelley, Appellee, v. United Benefit Life Insurance Company, Appellant.
    Gen. No. 8,692.

      Opinion filed April 25, 1934.
    Early & Early, for appellant.
    Page & Foltz and Hall & Dusher, for appellee.
   Me. Justice Huffman

delivered the opinion of the court.

This is a suit by appellee as beneficiary in a life insurance policy issued by appellant upon the life of her son, Leland M. Kelley. Appellant prosecutes this appeal from the judgment upon a verdict in favor of appellee.

The deceased held two policies: one an accident and health policy issued by the Mutual Benefit Health and Accident Ass’n, hereinafter referred to as the Mutual Benefit Co., and one a life policy issued by appellant, the United Benefit Life Insurance Co., hereinafter referred to as the United Benefit Co. These two companies had interlocking officers. Each company had three officers and the same three individuals constituted the officers of each company. The two companies occupied the same building and had the same business address in the City of Omaha, Nebraska. They sold what Mr. Shaeffer, the secretary of appellant company, designates as a combination plan of insurance, which consisted of two contracts, such as were sold to the deceased herein. Both companies had one general agent located in the City of Rockford, by the name of H. E. Stone.

The deceased purchased the combination plan of insurance. The accident and health contract was issued by the Mutual Benefit Co., and the life policy was issued by the United Benefit Co., appellant. A joint receipt was issued by these companies upon the payment of premium, which at the top thereof contained the following language:

“Premium Receipt

United Benefit Life Insurance Co. (Omaha, Nebraska) and Mutual Benefit Health and Accident Assn. ’ ’

This combination plan of insurance was sold to Leland M. Kelley on June 29, 1928. The health and accident policy provided that in case of permanent total disability of the insured due to injury, sickness or disease, the payment of premiums was waived, and further provided for the payment of certain cash benefits. The life policy provided for the waiver of premiums upon satisfactory proof being furnished the company of the insured’s total permanent disability because of accident or disease.

About one year after the above policies were delivered to the insured, he made claim for total permanent disability because of a disease with which he had become afflicted. The doctor who was at that time treating the insured called upon Mr. Stone, the general agent of both companies, at his office in Rockford; advised him that the purpose of his call was to secure blanks upon which to make proof of the total permanent disability of the insured, under his policies, whereupon Mr. Stone gave to the doctor a set of blanks to be filled out for the proof of total permanent disability, stating the one set of blanks would do for both policies. This set of blanks was upon the Mutual Benefit Co., under whose name the health policy had issued. The physician states that appellant’s general agent advised him the set of blanks as furnished would cover everything and apply to both policies. Subsequently the blanks were filled out and sent to the home office at Omaha, Nebraska. Following this, a claim adjuster came to the residence of appellee, where the insured was confined, and in July, 1929, settlement was made in the sum of $535, upon the health policy, as the result of the proof of total permanent disability as submitted..

The insured died on February 8, 1931. Following his death, appellee submitted proof thereof to appellant and made claim for the payment of the life policy. Appellant refused payment and this suit was instituted by appellee as the beneficiary in the life policy. The jury rendered a verdict in favor of appellee and judgment was pronounced thereon.'

A premium upon this policy had become due and the 30-day grace period had elapsed prior to the death of the insured. Appellant takes the position that the policy had lapsed for nonpayment of premium. Appellant further denied liability on the ground that the insured was not totally and permanently disabled, alleging no notice of such disability was given it, and therefore the premium waiver clause did not become effective, and as a consequence the policy had lapsed prior to the death of the insured.

Appellee insists that proof of total permanent disability had been furnished appellant’s general agent with the understanding that the one set of proofs would be sufficient for both policies, that under the provisions of the life policy, payment of premiums thereon was thereby waived, and that when dealing with the general agent of both companies she had the right to rely upon his statements, and where both principals were interested in the same subject matter that the general agent of such principals owed a duty to each, and notice to him was notice to each, and that his statements were binding upon the principals, citing the following authorities: Hanon v. Kansas City Life Ins. Co., 269 Ill. App. 135, 148; Ford v. Union Automobile Indemnity Ass’n, 229 Ill. App. 264, 269; Orient Ins. Co. v. McKnight, 197 Ill. 190, 191; Eberhart v. Aetna Ins. Co., 217 Ill. App. 354; American Hominy Co. v. National Bank of Decatur, 294 Ill. 223, 234; Weisguth v. Supreme Tribe of Ben Hur, 272 Ill. 541, 548, 549.

Appellee further urges that although the United Benefit Co. and the Mutual Benefit Co. were separate corporate entities, yet because of the fact that they conducted their insurance business together, sold a combination plan of insurance, had their offices in the same building with the same business address, and with the same persons constituting the officers of each company, the appellant is thereby precluded from raising the legal distinction of separate corporate exist-' ence, and that to do so, would permit appellant to circumvent its legal liability by a mere legal fiction, citing the following authorities: Rockford City Traction Co. v. Industrial Commission, 295 Ill. 358, 360; McDermott v. A B C Oil Burner Sales Corp., 266 Ill. App. 115, 121; Central Trust Co. v. Calumet Co., 260 Ill. App. 410, 418.

The provision for the waiver of premiums in the life policy sued on is that the insured shall furnish proof satisfactory to the insurer at its home office that he has become totally and permanently disabled by accident or disease. No condition is set out as to the manner in which the proof is to be furnished. It does not provide that the proof is to be in writing. Proof is such evidence of the truth of the matters asserted as tends to establish them. Anderson v. Inter-State Business Men’s Accident Ass’n, 354 Ill. 538, 544. Contracts of insurance are to be construed liberally in favor of the insured. Where one has in good faith furnished proof sufficient to apprise the insurer of the character and extent of the claim, and no particular forms are required by the policy or by statute, such person should not be barred because of the nature or manner in which the proof was submitted, provided such proof was actually submitted and the insurer had due notice thereof. Anderson v. Inter-State Business Men’s Accident Ass’n, supra.

In this case the proof was made upon blanks furnished by the general agent of both companies, who stated the one set of blanks would suffice for both policies. Appellee urges that under such circumstances, with both companies operating through the same individuals as officers, and engaged in the sale of a combination plan of insurance, the acts of the general agent of said companies were binding upon such companies, and his representation that proof submitted upon one set of blanks would be sufficient for both policies was binding upon appellant.

Fletcher, in dealing with the situation of interlocking officers and with respect to one person acting for two or more principals, quotes from Mechem on Agency as follows: “Where the same person acts with their consent, as agent of two or more principals, all interested in the same subject matter, and concerning which he owes a duty of communication to each, notice to this agent must doubtless be deemed notice to all his principals in accordance with the ordinary rules.” Fletcher Cyc. Corp. vol. 4, par. 2248. Mechem on Agency (2nd Ed.) par. 1837. We find no case involving the particular situation as is herein presented. In such instances it is necessary that fundamental principles of law, as just above announced, be resorted to.

The general agent of appellant and of the Mutual Benefit Co. was the prominent actor in the transaction and he could not cease to have in mind facts, while acting for the one company, that he had in mind while acting for the other, when both companies were interested in the same subject matter. He knew the policies had been sold upon a combination plan by these two companies and to the same purchaser. When the physician came to him for the purpose of securing necessary papers upon which to make proof of total permanent disability for this insured, and received from the agent a set of blanks with the statement that they would suffice for both policies, such proof upon being completed in accordance with the directions of the general agent of appellant, should be considered notice to appellant company. We are of the opinion that the general agent of appellant, being clothed with the power to solicit insurance in both companies, sell this combination plan of insurance, receive and forward applications therefor, receive and deliver policies, and to furnish claim blanks, receive and forward proofs for claims made in accordance with the provisions of such policies, had the right and power in this instance to waive the furnishing of proof to appellant of the claim of disability of this insured, by the execution of a duplicate set of blanks. The general agent of appellant, acting in the dual capacity in which he was then acting, had the power to waive a second set of proofs by the insured, as was done in this case. Davis v. Home Ins. Co., 233 Ill. App. 566, 570; Maltby v. Empire Auto Ins. Ass’n, 239 Ill. App. 532, 537, 538; Phenix Ins. Co. v. Stocks, 149 Ill. 319, 336; Hancock Mut. Life Ins. Co. v. Schlink, 175 Ill. 284, 292; Milwaukee Mechanics’ Ins. Co. v. Schallman, 188 Ill. 213, 224.

The proof of disability was mailed to the home office of appellant in Omaha, Nebraska. The proof submitted was approved by the Mutual Benefit Co., and settlement made upon that policy. Nothing became due from appellant upon the life policy during the lifetime of the insured. The same agent and officers representing both companies, and the proof of disability submitted being approved by such persons on behalf of the Mutual Benefit Co., it is hard to conceive that they did not have notice and knowledge of the disability of the insured as officers of appellant company. They necessarily knew as much in the one capacity as they did in the other, and should not be permitted in this case to deny notice of proof of disability and to avoid liability because of separate corporate existence of these two companies.

Appellant offered no evidence upon the trial of this case. Appellee is entitled to all the favorable inferences legitimately arising from the evidence, and the verdict should remain undisturbed, unless it clearly appears that it was the result of passion or prejudice, or contrary to the clear weight of the evidence. Dick v. Zimmerman, 105 Ill. App. 615. In such cases courts of review will not reverse a judgment, when it is not manifestly against the weight of the evidence. Blackhurst v. James, 304 Ill. 586.

The question of the disability of the insured and of notice to appellant, were questions of fact for the jury. Milwaukee Mechanics’ Ins. Co. v. Schallman, supra. The waiver of premium clause in the life policy now sued on, only provides that proof of disability satisfactory to appellant should be furnished. It does not specify or provide in what manner or by what method such proof shall be furnished. Under such circumstances we are of the opinion that the insured was required to furnish only such proof as should be satisfactory to reasonable men acting reasonably. Wood v. Prudential Ins. Co. of America, 271 Ill. App. 103, 112; Anderson v. Inter-State Business Men’s Accident Ass’n, supra.

It was within the province of the jury to weigh and consider the evidence bearing upon such questions of fact, and to determine same. Where the evidence is sufficient to sustain the verdict, and no errors of law have been committed to cause reversal, courts of review will not disturb the verdict, unless it clearly appears that it is contrary to the evidence. The only evidence appearing in the record is that of appellee, and we are unable to say that the verdict is contrary to the weight of the evidence.

Appellant and appellee both presented their instructions to the court after commencement of argument of the case to the jury. Appellant submitted 20 instructions, upon which the trial court indorsed the statement that same were submitted to him 15 minutes after attorney for appellee had proceeded with argument to the jury and that they were refused under rule two of that court. Appellee submitted seven instructions upon which the trial court made a similar indorsement. It appears that rule two of the circuit court of that county provided all instructions must be handed to the trial judge before the commencement of arguments, and instructions submitted later might be refused for that reason alone. It has been stated: “The rules of court have the same binding force upon parties, as well as upon the court as have statutes.” North Ave. Bldg. & Loan Ass’n v. Huber, 286 Ill. 375, 383. Appellant urges the action of the trial court in refusing to give the instructions, as grounds for reversal but presents no authorities in support thereof. The right of the court to exercise this rule is recognized in the case of Illinois Cent. R. Co. v. Haskins, 115 Ill. 300, 311. This rule was relaxed somewhat in the case of People v. Jennings, 312 Ill. 606. In that case the defendants were charged with a felony, and it is apparent the reviewing court was not satisfied with the sufficiency of the evidence as against the defendant, Graines. That cause was affirmed as to one defendant and reversed as to the said Graines. It was there said that under the circumstances in that particular case, the one instruction offered should have been given. Some argument might be made that the trial court in this case should have relaxed the rule, but the instructions were not offered until about 15 minutes after argument to the jury was commenced. We do not consider the court’s refusal to relax the rule, to constitute reversible error in this case. It may be said that during the process of trial an instruction upon some particular phase of the case may become proper and necessary, which counsel had not anticipated or thought of before the beginning of the trial, but certainly counsel had prepared such instructions as they would ordinarily expect to use, in sufficient time to have presented them to the trial court before the commencement of argument to the jury.

The evidence is undisputed that appellee as well as the insured relied upon the representation of the general agent of appellant that the one set of proofs would be sufficient for both policies. There was nothing to put appellee or the insured upon notice that the proof submitted in compliance with the instructions of appellant’s agent was not satisfactory. He was acting in a dual capacity as agent for both companies. The insured and appellee were thus lulled into silence and took no further steps toward making similar proof upon a second set of blanks. Under the circumstances, we are of the opinion they were entitled to consider the proof submitted was satisfactory to appellant.

Finding no reversible error in the record the judgment of the circuit court of Winnebago county is affirmed.

Judgment affirmed.


author: Mb: Pbesiding Justice Wolfe

text:
    The People of the State of Illinois ex rel. Oscar Nelson, Auditor of Public Accounts of the State of Illinois, Complainants, v. First State Bank of Mineral, Defendant. Olive R. Armstrong, Intervenor-Appellant, v. C. A. Simington, Receiver for the First State Bank of Mineral, Appellee.
    Gen. No. 8,738.
    Opinion filed May 10, 1934.
    James H. Andrews, Gregg A. Young and Harper Andrews, for appellant.
    Cairo A. Trimble and Perry D. Trimble, for appellee.
   Mb: Pbesiding Justice Wolfe

delivered the opinion of the court.

This is an appeal from the circuit court of Bureau county to review a decree entered by that court disallowing a claim for preference made by the appellant, Olive R. Armstrong, against the appellee, C. A. Simington, receiver for the First State Bank of Mineral,Illinois. The bank suspended business September 2, 1931, and on October 14, 1931, the auditor of public accounts filed a bill in the circuit court of said county, praying that the court would take jurisdiction of the case for the dissolution of the bank. On February 22, 1932, a general claim was filed against the bank by the appellants for the sum of $2,007.62. On October 7, 1932, by agreement of the parties a preferred claim was filed, and on March 17, 1933, this claim was amended.

On the hearing the following facts in the case were stipulated to be true. It is agreed that the sum of $2,007.62 was deposited by the appellant in the First State Bank of Mineral and is the proceeds of a war risk insurance policy received by the appellant as beneficiary upon the death of her son, Willis L. Armstrong, an honorably discharged World War veteran; that said sum was deposited in said bank December 12, 1922, with additional sums of money from other sources from time to time, making a total deposit of $2,050. The claim for preference is only made for $2,007.62. It is further stipulated that appellant received a 15 per cent dividend amounting to $313.36 from the bank and a six per cent dividend from a stockholders’ suit amounting to $125.34, total $438.70; and that said sum shall be a credit to apply on the claim; that the balance due of the said preferred claim, as so allowed,, is the sum of $1,568.92.

The appellant claims that at. the time she made the deposit she had a conversation with the cashier and his assistant; that she took her check to the bank and told them she wished to keep her money as an investment and to draw only the interest for her use from time to time; that she asked their advice as to how she could keep her money invested and that they advised her to deposit the check in a savings account, which she did. This conversation is disputed by the appellees; however, the appellant did deposit her check and was given credit for the same on the books of the bank as a regular savings account, from the time of the deposit until the bank closed. The appellant was regularly credited with the interest on the savings account and made small deposits of money from other sources from time to time and also withdrew small amounts, but always maintained a balance of $2,000 or more.

Upon the hearing of the case, the court entered a decree finding that the defendant’s deposit was a general deposit in the savings account; that no special agreement was made, and that no special circumstances attended the making of the deposit, on which any trust arose in favor of the appellant and denied the petition for preference.

The issue presented to this court for decision is: First — Do the federal statutes grant the beneficiary of a war risk insurance policy immunity from attachment, levy, or seizure under any legal or equitable proceedings so that the proceeds of such deposit in a closed bank was entitled to a preference over a general claim? Second — Does the presumption that the first sum paid in is the first sum drawn out govern, if the court finds that there was an expressed intention of this appellant to leave the proceeds of the war risk insurance intact as an investment and only withdraw the income? From an examination of the stipulation and the evidence in the case we are of the opinion that the court properly held that the deposit was a general one in the savings account; that no special agreement was made, and that no special circumstances attended the making of said deposit, out of which a trust arose.

A deposit with a bank placed to the credit of the depositor creates merely the relation of a debtor and creditor between the bank and the depositor and the bank has no money of the depositor in its possession, but simply owes the money to the depositor. People v. Tallmadge, 328 Ill. 210. In order for a claim against an insolvent bank to be given a preferred standing some trust relation must exist, or the claim for preference must be governed by some statute that is applicable.

The plaintiff’s contention or claim for preference is based on the fact that the funds here in controversy originated or came from money paid to her as insurance due her from the government on a policy of war risk insurance on her son who was a veteran in the World War. The plaintiff relies upon the World War Veterans’ Act of Congress of 1928 found in the United States Code Annotated, Title 38, section 454, page 217, which provides that such funds as this involved herein “payable under Parts II, III, and IV, respectively, shall not be assignable; shall not be subject to the claims of creditors of any person to whom an award is made under Parts II, III, or IV; and shall be exempt from all taxation. Such compensation, insurance, and maintenance and support allowance shall be subject to any claims which the United States may have, under Parts II, III, IV, and V, against the person on whose account the compensation, insurance, or maintenance and support allowance is payable.”

The appellant relies upon the case of Nelson v. Colegrove & Co. State Bank, 267 Ill. App. 317, in which a guardian of a disabled war veteran was allowed a preferred claim in a closed bank. At the time this opinion was written the Supreme Court of the United States had not passed upon this question. The State courts are in conflict in this matter, some holding that such claims are preferred, and others holding they are not. The Appellate Court in the Nelson case followed that line of decisions holding that such claims should be preferred as governed by the statutes of the United States. Since this decision the Supreme Court has had occasion to render an opinion in this matter. In the case of Spicer v. Smith, 288 U. S. 430, 77 L. Ed. 875, they hold that such a claim was not a preferred claim but a general claim against the bank. The Spicer case arose in the State of Kentucky. Spicer was a United States soldier in the World War, and while in the service he suffered a permanent mental incompetency; he was entitled to receive from the United States war risk insurance and disability compensation. He had a guardian appointed who qualified and was acting as such. The government paid to the guardian the instalments that were due the ward. The guardian deposited the funds in a bank that later became insolvent and such bank was taken over by the defendant Smith as receiver to liquidate the bank. At the time the bank closed the guardian had on a deposit a sum in excess of $6,000, derived from the payments that were due the soldier from the government. The guardian filed a claim for preference and demanded payment in full of his deposit. The Supreme Court of Kentucky held the said deposit was a general one and not entitled to any preference. The United States Supreme Court, in their opinion, say, “The question has not been considered here and the decision on it in the State courts being in conflict, we granted a writ of certiorari.” After a review of other cases and the statement of what the law provides the court held, that, when money is paid by the government to a person entitled to receive it or to a legally qualified guardian, the statute exempting it from legal process does not apply, but the government has fulfilled its full obligation to the ward when they have paid it to him.

The case of Duzan v. Cantley, 227 Mo. App. 670, 55 S. W. (2d) 711, is a case involving identically the same principles of fact and law now before us. The court uses this language: “From this it is argued that the money shall not be subject to the claims of creditors, and since there can be no assignment or garnishment or other proceeding against the beneficiary, therefore the relationship of debtor and creditor cannot exist, especially where the bank takes the fund with knowledge of the source thereof.

“The contention is on the theory that the purpose and intent of the legislation in behalf of veterans is to protect the money from all claims except the United States government, not only until it comes into the hands of the beneficiary, but also until the latter has himself spent it. We think this is not the correct construction or interpretation to be placed thereon. In our view, funds thus arising are not thus protected after they have once come into the hands of the beneficiary. They have then become his absolute property, and having once come into his hands are no longer an object of solicitude or care on the part of the government. The latter is careful to protect the fund until the beneficiary receives it, but no further. This seems to be clear from the use and subsequent reiteration of the word ‘payable.’ So long as a fund is ‘payable’ to a person it has not yet reached his hands, but when it has, it can no longer be said to be payable to him. This is borne out by the plain intent of section 54, page 81, of the above-mentioned USO A, where, in protecting money due pensioners, attachment, levy, or seizure of such funds is prohibited, it speaks of money ‘due, or to become due,’ to any pensioner, ‘whether the same remains with the Pension Office or any officer or agent thereof, or is in course of transmission to the pensioner.’ It is not exempt after it is paid to the pensioner.” Duzan v. Cantley, 227 Mo. App. 670, 55 S. W. (2d) 711.

In the case of Commissioner of Banks v. Buckley, 282 Mass. 512, 185 N. E. 27, the court considered a case very similar to this case. At that time the Supreme Court of the United States in the case of Spicer v. Smith, supra, had "been decided. They there reviewed the substance of the provisions of all the statutes of the United States which were relied upon by the claimants for preference in veterans’ affairs and the court decided that the claimants only take a general claim against the assets of the bank.

The evidence in this case shows that the appellant made the deposit in the bank in December, 1922, and the same remained as a savings account in said bank until the bank closed in September, 1931. When the appellant accepted the check for the amount due her under this policy from the government she accepted it as payment for her claim against the government and was a full payment of her claim. She treated it as such and accepted the interest on this deposit from the bank on each interest paying date. Because she did not choose to spend the amount that she had received on the policy of insurance and deposited it in the bank, would have no bearing upon the question of whether the same was protected by the statute of the United States, excepting certain funds, from attachment, etc. It is our opinion that the court properly found that this claim was not a preferred one, but one to be allowed as a general claim against the assets of the closed bank.

Decree affirmed.