author: Mr. Justice Matchett O’Connor, J.,

text:
    Chicago Title and Trust Company, Appellee, v. Isadore R. Cohen, Appellant.
    Gen. No. 38,505.

      Opinion filed March 2, 1936.
    Irving Greenspahn and Harry J. Myerson, both of Chicago, for appellant; David H. Kraft, of Chicago, of counsel.
    Sabath, Perlman, Goodman & Rein, of Chicago, for appellee; Theodore E. Rein, Isidore Goodman and Morris L. Kilmnick, all of Chicago, of counsel.
   Mr. Justice Matchett

delivered the opinion of the court..

In an action of assumpsit plaintiff, on January 16, 1935, filed an amended declaration averring the liability of defendant under a written guaranty whereby defendant and 44 other persons guaranteed the payment of bonds to the amount of $200,000 issued by the Congregation Anshe Emes, February 11, 1926, to the Greenebaum Sons Investment Co. for a loan of that amount. The declaration set up the guaranty verbatim, a description of the bonds, the trust deed conveying real estate to secure the same, and averred the defaults of the maker and the liability of defendant to the extent of $5,000, the amount to which under the terms of the guaranty his liability was limited.

Defendant filed a plea of the general issue and special pleas that the guaranty was without consideration; that he did not make and deliver the guaranty; that plaintiff was without power or capacity to purchase or receive the bonds, to contract with defendant for the supposed guaranty, or to own or hold any of said bonds, and that under article 3, section 1, of the trust deed plaintiff was without right, power or capacity to institute the suit; that defendant by the terms of the guaranty was liable only in case a deficiency judgment should be entered after foreclosure, and that the action was brought prematurely; that under section 32, paragraph 162, chapter 32 of the Illinois Statutes then applicable, the Congregation Anshe Emes could borrow money only when authorized by a vote of the members thereof; that this loan was not so authorized and was void for that reason.

Plaintiff’s declaration was verified by an agent duly authorized, who after setting up facts in detail as to the nature and cause of action, averred that there was due from defendant to plaintiff, after allowing all just set-offs, discounts and defenses, the sum of $5,000. In conformity, therefore, with the statute, the pleas of defendant were supported by an affidavit of merits purporting to disclose the substance of the defense to be interposed. There was no affidavit denying the signature of defendant to the written guaranty and other written instruments upon which the suit was based, and that fact therefore stands admitted. On July 16, 1935, the court, on motion of plaintiff, struck the amended affidavit of merits, which defendant had filed in support of his pleas, for insufficiency; denied defendant leave to amend, entered his default for want of a plea, found that $5,000 was due and entered judgment on the finding. It is from that judgment that defendant has appealed.

Plaintiff makes the preliminary point that by reason of a stipulation to dismiss, the questions arising on the record are moot, and that the appeal should be dismissed, there being no real controversy between the parties. Plaintiff’s views in that regard were presented upon its motion to dismiss, which was denied. The question has been once decided, and w'e shall not decide it again.

Defendant raises certain procedural points, which he insists compel a reversal, irrespective of the merits. These are to the effect that the court erred in striking the affidavit after the cause was at issue and had been noticed for trial; that the court was without jurisdiction to enter the judgment in vacation; that the previous order upon a similar motion to strike should have been set aside before the entry of the final order of July 16th. The contentions are without merit. The fact that the cause was at issue and had been noticed for trial could not, prior to the entry of final judgment, control the discretion of the court as to the sufficiency of .the pleadings. Shaw v. Dorris, 290 Ill. 196; Luther v. Mathis, 211 Ill. App. 596; Colfax Grain Co. v. Bradford, 225 Ill. App. 419. Defendant cites rule 22 of the superior court, which is not at all controlling. The record does not disclose that the judgment was entered in vacation. There is no record showing that the court had adjourned, and as w.e understand the statute, the superior court of Cook county does not adjourn for vacation in the technical sense. Ill. State Bar Stats. 1935, ch. 37, ¶ 85, sec. 4, p. 1079. Moreover, the record does not disclose any objection by defendant in the trial court for the reasons now urged. The proceedings seem to have been conducted according to the usual practice, and the court was not without jurisdiction.

The controlling question in the case is whether the court erred in striking the affidavit of merits filed by defendant in support of his pleas. The affidavit was in seven paragraphs, the contents of which will be noticed in connection with the several points urged by the respective parties with reference to its sufficiency.

Plaintiff concedes that the plea of the general issue supports the defenses asserted in the amended affidavit of merits, and that the affidavit states the ultimate facts relied upon by defendant with sufficient fullness; however, plaintiff contends that notwithstanding, the affidavit was in substance defective and that the averments of facts therein were not sufficient to constitute a legal defense to the cause of action set up in the declaration. For this reason it would seem that the objections put forth by defendant that the grounds of the motion to strike were not stated with sufficient particularity cannot be urged in this court. Mutual Accident Ass’n v. Tuggle, 138 Ill. 428; People v. Greer College, 302 Ill. 538.

It was under the statute obligatory on defendant by his affidavit of merits to show that he had a sufficiently good defense “on the merits to all or some part of the plaintiff’s claim to entitle him to defend the action.” Ill. State Bar Stats. 1935, ch. 110, sec. 57, ¶ 185, p. 2446. The rule, we think, was not otherwise under section 55 of the former Practice Act. Cahill’s Ill. Rev. Stats. 1931, ch. 110, p. 2179. If the affidavit of merits discloses an issue for the jury, summary judgment will be denied. Ill. State Bar Stats. 1935, ch. 110, sec. 57, ¶ 185. The burden in this respect is on defendant, although he seems to think otherwise, and the contract of guaranty which is set up in the declaration being unambiguous in its provisions, the rule of “ strictissimi juris” wall not be applied to its construction as defendant contends. Cases such as Bruner v. Wolford, 356 Ill. 514, are limited to guaranties, in which the language is of doubtful meaning. 28 Corpus Juris, sec. 81, pp. 936-7, and cases there cited.

It is suggested that the affidavit of merits stated a good defense by way of fraud and circumvention. This defense must be set up specially. There is no such plea by defendant. In absence thereof, even if it be conceded that the affidavit averred sufficient facts, the contention could not prevail. Lyon v. White, 214 Ill. App. 232; Slack v. McLagan, 15 Ill. 242; Jones v. Albee, 70 Ill. 34. Defendant undertakes to show that this rule is not applicable to the defense of “fraud and circumvention,” which defense, he says, is admissible, under the general issue. He cites Benes v. Bankers Life Ins. Co., 282 Ill. 236; Runyan v. Moon, 267 Ill. App. 312, and other cases which we have examined, and we find that same do not sustain the proposition of law for which he contends. However, assuming the technical right to present this defense, we hold the facts averred in the affidavit of merits wholly insufficient to sustain it. These averments are found in the first paragraph of the affidavit and are to the effect that Gfreenebaum Sons Investment Co. promised that the guaranty would not become effective until all the officers and directors of the Congregation joined in the execution of it; that the Gfreenebaum Co. also promised that it would join in such execution and affix its signature as a party and agreed to cancel and nullify the instrument if the conditions' were not fulfilled. The affidavit says that all of the officers and directors did not sign; that the investment company did not sign. Whatever may be the force of these allegations upon the question later considered of the delivery of the guaranty, they signally failed to allege fraud and circumvention, for the reason that the essential averment of the false statement as to an existing fact is wanting. The allegations all look to the future and are promissory, and, if true, show at the most unkept promises, and these are averred only in general terms and by way of conclusions quite insufficient as an answer to the specific writings and averments with reference thereto which are set up in the declaration. We hold the affidavit wholly insufficient in this respect. Gage v. Lewis, 68 Ill. 604; Luttrell v. Wyatt, 305 Ill. 274; Brodsky v. Frank, 342 Ill. 110. Illustrative of this point, the names of other officers who were said to have signed are not set up in the affidavit, while these names, 44 in number, appear in the document set up in the declaration. The defense of fraud and circumvention is, we hold, not presented on this record.

The second paragraph of the affidavit of merits undertakes to set up facts showing a want of consideration as averred in the plea. Defendant cites cases, such as Bullen v. Morrison, 98 Ill. App. 669; Erzinger v. Gerrity, 271 Ill. App. 450; Matthiessen v. Duntley, 307 Ill. 36, and similar cases, which seem to hold that it is sufficient to aver want of consideration merely as a conclusion. Plaintiff points out, however, that while it is true that merely formal recitals, such as “for value received,” a “good and valuable consideration,” or “the receipt of one dollar in hand paid,” are always subject to explanation or denial, these differ from cases where, as here, in preliminary recitals the consideration is described. The guaranty in this Case provides that the investment company is about to make the loan “in contemplation of and in reliance upon and in consideration of the guaranty by the parties of the first part.” Plaintiff contends that the cases cited by defendant are inapplicable to such a situation and also where it appears from the declaration that actual payment or performance of the consideration is admitted by defendant. The contract here shows that the investment company agreed to accept the bonds and that it actually accepted them. This is not denied by the affidavit. Under such circumstances, the bare denial as a conclusion that there was consideration cannot avail because it amounts to asserting nothing. When, as here, the making of a guaranty is simultaneous with the execution of the principal contract, the one consideration is sufficient for both parts of the transaction. 28 Corpus Juris 917; 12 R C. L. 1077; Foley v. Friestedt, 178 Ill. App. 636. Under the pleadings here there is in substance an admission that a valuable consideration was received and paid for the guaranty, and a denial only by way of conclusion in the face of such admission cannot avail.

The affidavit also avers, without stating facts from which the truth of the conclusion averred may be determined, that plaintiff is not the owner of the guaranty, but that averment amounts only to the assertion of a conclusion of law, which creates no issue for the jury. The bonds, it will be remembered, are payable to bearer. 8 Corpus Juris 934; Thompson v. Johnson, 202 N. C. 817, 164 S. E. 357; Feulner v. Gillam, 211 Ill. App. 348; H. & E. Holding Co. v. W. A. Davis Lumber Co., 229 Ill. App. 409; Witting v. Claras, 274 Ill. App. 449.

The affidavit also avers that “plaintiff was wholly without corporate power or capacity to purchase, accept, or own or hold any of the bonds or enter into the' alleged contract of guaranty.” Defendant says that the provisions of the Business Corporation Act of 1933 are not pertinent, citing Roche Pharmacy v. Campus Pharmacy, 280 Ill. App. 542, and Cahill’s Ill. Rev. St. 1933, ch. 32, sec. 163, ¶ 158 (5). In support of his contention that the doctrine of ultra vires is applicable, he cites Calumet & Chicago Canal & Dock Co. v. Conkling, 273 Ill. 318; Mercantile Trust Co. v. Kastor, 273 Ill. 332; Knass v. Madison & Kedzie State Bank, 354 Ill. 554; Awotin v. Atlas Exchange Nat. Bank, 275 Ill. App. 530, and Culhane v. Swords Co., 281 Ill. App. 185. That the power to borrow money was not ultra vires in the sense used in these cases decided under the Corporation Act of 1919 is apparent from an examination of Peoria Life Ins. Co. v. International Life & Annuity Co., 246 Ill. App. 38; Independent Order of Svithiod v. Ring Lodge No. 8, 261 Ill. App. 289; Hall v. Woods, 325 Ill. 114. Moreover, the cases are to the effect that irrespective of the liability of the principal obligor, the guarantor is held liable. Ashley Wire Co. v. Illinois Steel Co., 164 Ill. 149; Holm v. Jamieson, 173 Ill. 295; Beebe v. Kirkpatrick, 321 Ill. 612; Bank of Plant City v. Canal-Commercial Trust & Savings Bank, 270 Fed. 477 (C. C. A. 5th Circuit). We hold that the affidavit does not set up any valid defense under the doctrine of ultra vires.

Defendant in his affidavit denies the right of plaintiff as owner of the bonds to bring this action at law, basing such contention on article 3, sec. 1 of the trust deed, which contains the usual clause found in such documents, vesting in the trustee a prior right to bring any action to enforce its provisions. Identical provisions have been held in numerous cases not to preclude a suit at law by the owner of the bond. Schatzkis v. Rosenwald & Weil, 267 Ill. App. 169; Gauss v. Simon, 268 Ill. App. 196; Oswianza v. Wengler & Mandell, Inc., 273 Ill. App. 239, affirmed in 358 Ill. 302.

The affidavit also questions the right of plaintiff to accelerate the maturity of that portion of the bonds, which by their terms had not matured. The defense is not available or pertinent, since defendant’s liability was limited to only $5,000, the guaranty covered each of the bonds, and bonds to much more than the amount of $5,000 in fact matured prior to the bringing of the suit.

It is also averred in the affidavit that the action was premature because a deficiency decree had not been entered prior to the commencement of the suit, and defendant says that the entry of such decree was a condition precedent to the right to begin suit. The language of the guaranty as set up in the declaration is clearly to the contrary. The covenant for the payment of the deficiency provides, “. . . but this covenant shall not limit or qualify the other remedies which may be pursued under this guaranty.” Other provisions of the guaranty are that the guarantors “jointly and severally guarantee the prompt payment of said temporary bond and of each and all of said definitive bonds and the interest thereon, when due, ... as completely and effectually as if said guaranty had been made by them, and each of them, in writing upon each of said bonds and interest coupons,” and further, “and they do hereby waive presentment for payment, notice of nonpayment or dishonor, diligence in collection and all formalities legally required to charge them, or any of them, with liability, ’ ’ and further that “recovery may be had against them or any of them, either in such action or in any independent action without exhausting any remedy or claim against the said Congregation Anshe Ernes.” The amended declaration sets up that after the filing of the original declaration, there was a foreclosure proceeding against the Congregation Anshe Ernes, and that a deficiency of $145,947.18 was found to be due.

The only question which appears to be worthy of serious consideration is that raised by the averment of the affidavit that the delivery of the contract was conditional. In this respect the averment is that the guaranty was conditional, in that it was not to become binding until executed by additional parties. Defendant cites Beall v. Jones, 211 Ill. App. 336; Sugar v. Marinello, 260 Ill. App. 85; Biederman v. O’Conner, 117 Ill. 493; Kunkle v. Johnson, 268 Ill. 442; Bell v. McDonald, 308 Ill. 329. Defendant urges that as held in the Bell v. McDonald case, evidence tending to show an agreement for conditional delivery does not contradict the terms of the writing but merely tends to show that it was never delivered as a valid contract. Here, the averment of the affidavit is, in substance, that Greenebaum Sons Investment Co. promised defendant that if he would sign, it would procure all the officers and directors of the Congregation to sign also, and that defendant’s signature would not be binding upon him until such other signatures were obtained; that defendant signed the instrument upon these express conditions and understandings and gave the same to the investment company to enable it to procure these other signatures and the investment company to also sign and execute the instrument as a party of the second part, “and, upon the express condition that said instrument would not be binding or operative upon the defendant, or delivered to the said Greenebaum Sons Investment Co., as a binding obligation of defendant, unless and until all of the aforesaid terms and conditions were performed.” The affidavit avers that the other signatures were not obtained, and that there was therefore no complete delivery for that reason.

The allegation that Greenebaum Sons Investment Co. would obligate itself to pay to itself a loan made by itself, is certainly unusual and unique. The decisions cited go very far, but it is evident that there must be a limit or qualification somewhere if the sanctity of written contracts is to be maintained. Plaintiff concedes that conditional delivery may be shown outside the language of the contract, and that such proof does not necessarily contradict or vary its terms by parol. It contends, however, that where the contract on its face denies the existence of any such condition, or where by necessary implication such condition is impossible, then to permit parol proof to the contrary would not only vary but destroy the agreement. The contract of guaranty set up in the declaration here describes the parties to it and definitely classifies them. The 45 individuals are all named as parties of the first part. The position of defendant amounts to the assertion of the right, notwithstanding- this written provision of the contract, to show an independent, outside, verbal agreement to the effect that other parties, whose names are not mentioned in the affidavit of merits, were to sign before liability could be incurred. This, as plaintiff points out, would in effect amount to writing additional promisors into the agreement and to that extent, remake the contract. The contract describes the guarantors as “members” of the Congregation. It does not mention “officers and directors.” The trust deed set up in the declaration also recites that the prompt payment of “the within bond” “has been guaranteed by certain of the members of the Congregation Anshe Ernes.” The trust deed is incorporated in the contract of guaranty by reference, and the guarantors expressly agree that they have knowledge of all the terms of the trust deed. The affidavit of merits avers as a conclusion that the guarantors were induced to enter into the obligation “at the instance of Greenebaum Sons Investment Company.” This is contrary to the express recital of the written contract which states that the guarantors “to induce the making of said loan and the acceptance of said bonds, are willing to make said guaranty.” None of these averments could be disproved by parol evidence, nor without utterly disregarding the parol rule could the court upon the trial permit the introduction of parol evidence tending to show the facts averred. In none of the cases cited, nor in any other case of which we are aware, have the courts of this State held such evidence to be admissible under such circumstances. In Northwestern Consol. Milling Co. v. Sloan, 232 Ill. App. 266, the court held parol evidence admissible to show that in a contract for the delivery of flour the phrase “within four months” was by agreement of the parties before the delivery of the contract to be changed to read “as needed.” This was upon the theory that the contract had not been finally completed when the agreement to change was made, the court, however, expressing the opinion “that there is not much left of the parol evidence rule. ’ ’

The cases were reviewed in the later case of Handley v. Drum, 237 Ill. App. 587, from which we quoted with approval in the later case of Tegtmeyer v. Nordlund, 259 Ill. App. 247, as follows:

“It is elementary that the defendant could not show by parol, even as against the payee of the note, that the parties had an understanding that the contract in fact was conditional. It is a fundamental part of the law of contracts, to which there are very few exceptions, that a party to a written contract may not contradict the terms of that contract by parol. But it is equally well established that such a party may show that the contract claimed to exist was in fact never fully executed, — that although it was signed by him, he never delivered it or that there was merely a conditional delivery and that the condition has failed. In so doing, the written terms of the contract are not varied by parol but the showing made is merely to the effect that the contract never was completely executed. ’ ’

In Eestatement of Contracts, vol. 1, ch. 4, sec. 102, it is said:

“A promise under seal is delivered unconditionally when the promisor puts it out of his possession with the apparent intent to create immediately a contract under seal, unless the promisee then knows that the promisor has not such actual intent.”

Section 228 of chapter 9 says:

“An agreement is integrated where the parties thereto adopt a writing or writings as the final and complete expression of the agreement. An integration is the writing or writings so adopted.”

Section 237:

“Except as stated in secs. 240, 241, the integration of an agreement makes inoperative to add to or to vary the agreement all contemporaneous oral agreements relating to the same subject-matter; and also, unless the integration is void, or voidable and avoided, all prior oral or written agreements relating thereto. If either void or voidable and avoided, the integration leaves the operation of prior agreements unaffected.”

Section 241 provides, in substance, that where the parties orally agree before or contemporaneously with the making of the writing, that it shall not become binding until the happening of a future event, the oral agreement is operative if there is nothing in the writing inconsistent therewith. Here all the writings are entirely inconsistent with the assertion of the affidavit that there was a conditional delivery.- As a matter of fact, the uncontradicted averments of the declaration (which must, therefore, be assumed to be true) show an unconditional delivery, and oral evidence would not be admissible to prove the contrary.

Defendant argues an abuse of judicial discretion because the court refused leave to file a third affidavit of merits. The general rule is otherwise. Bradley v. Progressive Metal & Refining Co., 205 Ill. App. 552; Harris v. Willis, 209 Ill. App. 401. No particular circumstances appear which would make this case an exception to the general rule.

It is impossible to read carefully the entire pleadings without coming to the conviction that defendant has no defense either technical or meritorious. Defendant has argued this case upon the theory that section 55 of the act in relation to practice and procedure approved June 3, 1907, is applicable (Cahill’s Ill. Rev. St. 1931, ch. 110, sec. 55, p. 2179). As a matter of fact, section 57 of the Civil Practice Act (Ill. State Bar Stats. 1935, ch. 110, p. 2446), under rule 1 of the Supreme Court, must be applied. Bulger v. Bulger, 282 Ill. App. 629 (Abst.). Under section 57 the former remedy by way of summary judgment has been very much extended. McCaskill’s Ill. Practice Act, Anno., Art. 7, pp. 13A-43. Section 55 of the former Practice Act differs much from section 57 of the Civil Practice Act. The primary purpose of section 55 was to disclose to the plaintiff the nature of the defense to be interposed. The primary purpose of section 57 of the Civil Practice Act is to enable the court to determine whether there is an issue of fact which should be tried. In Dwan v. Massarene, 192 N. Y. S. 577, the Appellate division of the Supreme Court, construing a similar section, said:

“The defendant must show that he has a bona fide defense to the action, one which he may be able to establish. It must be a plausible ground of defense, something fairly arguable and of a substantial character. This he must show by affidavits or other proof. ’ ’

Rule 15 of our Supreme Court provides, in substance, that the affidavits of a defendant in a proceeding of this kind “shall not consist of conclusions but of such facts as would be admissible in evidence.” Under this rule the affidavit here submitted is wholly insufficient. The court did not err in striking the affidavit of merits and entering a summary judgment for defendant.

The judgment is therefore affirmed.

Affirmed.

McSurely, P. J., concurs.

O’Connor, J.,

specially concurring: .1 agree with the result reached and what is said in the foregoing opinion, but prefer the statement of the Parol Evidence Rule as found in section 275, 1 Greenleaf on Evidence, 13th ed., and other authorities, to section 237, above quoted from Volume 1 of Bestatement of the Law on Contracts.


source: Caselaw Access Project

author: Mr. Justice Matchett

license: Public Domain

text:
    Marion Keller, Appellee, v. Theodore P. Keller et al., Appellants.
    Gen. No. 38,521.
    Opinion filed March 2, 1936.

      Cutting, Moore & Sidney, of Chicago, for appellants; Edwin C. Austin, Merritt C. Bragdon and Adlai E. Stevenson, all of Chicago, of counsel.
    Jacob J. Chapman and Maurice L. Davis, both of Chicago, for appellee.
   Mr. Justice Matchett

delivered the opinion of the court.

This appeal is by defendant trustees from a decree entered July 13, 1935, directing them to apply a portion of the income of a certain trust fund in their hands, otherwise payable to Theodore P. Keller, to the satisfaction of orders entered by the superior court of Cook county against him for the support of his minor children; Lloyd George and Edith Jane, during their minority. The cause was heard upon a stipulation of facts, and the question for our consideration concerns the law applicable thereto.

The summarized facts would appear to be that plaintiff, Marion Keller, and defendant Theodore P. Keller, were married January 17, 1917, and Lloyd George and Edith Jane were born of that marriage. May 17, 1926, Marion Keller sued Theodore P. Keller for separate maintenance in the superior court of Cook county, and May 28, 1927, she filed her amended bill, praying for divorce. June 17, 1927, a decree in her favor was entered as prayed. The decree gave to her the care, custody and education of these minor children, but no provision was made in the decree for the payment of alimony or for the support of the children. However, the day following the entry of the decree Theodore P. Keller executed and delivered a trust indenture by which he conveyed to the Northern Trust Co. and Marion Keller, as trustees, certain improved real estate situated in Chicago and known as 1245 Jarvis avenue, the express intention being thereby to provide adequate support for the children. At the time of the conveyance the real estate was incumbered by a mortgage for $17,000, and shortly after June 2,1930, the income became insufficient to pay interest and expenses of upkeep, whereupon the trustees on April 16, 1934, in order to avoid the expense of foreclosure (and with the consent of Theodore P. Keller) conveyed the premises in satisfaction of the mortgage indebtedness. These minor children have lived with plaintiff, their mother, and have been supported by her, she being permitted to occupy one of the apartments at 1245 Jarvis avenue, but as she was unable to pay rent she has been compelled to vacate.

The father of Theodore P. Keller was Theodore C. Keller of Chicago, who died testate September 6, 1930, a resident of Cook county, and leaving a substantial estate. His will created a trust fund from which. Theodore P. Keller is entitled to receive an income amounting to approximately $4,400 per annum.

The third paragraph of the will devises and bequeaths all the rest, residue and remainder of his estate, subject to certain provisions of the first article, to his wife, Jessie P. Keller, and the National Bank of the Republic of Chicago, as trustees for the uses and purposes therein set forth. Paragraph 7 of the will provides for the payment of the income from the trust fund to the testator’s children, including Theodore P. Keller, and provides with respect to the payment of all income: “. . . such payments to be made in installments, as often as found convenient by my trustees, but not less than twice in each year; each installment to be paid personally to the child entitled thereto, and not to be capable of anticipation or assignment.” The will was executed about three years after the entry of the divorce decree against Theodore P. Keller. The question for determination is whether the court erred in subjecting this income of Theodore P. Keller to the support of his minor children.

The courts of different jurisdictions are not in harmony on the question of the validity of so-called “spendthrift trusts.” In England such trusts are held invalid as unlawful restraints on the alienation of property. Brandon v. Robinson, 18 Ves. 429. The courts of some American States have adopted the English rule upon the same reasoning. Tillinghast v. Bradford, 5 R. I. 205, and Smith v. Moore, 37 Ala. 327, are illustrative. The Supreme Court of the United States, however, gave the weight of its approval to the validity of such trusts in Nichols v. Eaton, 91 U. S. 716, the Supreme Court of Massachusetts likewise in Broadway Nat. Bank v. Adams, 133 Mass. 170, and the Supreme Court of Pennsylvania in Overman’s Appeal, 88 Pa. St. 276. These earlier decisions and many others from courts of different jurisdictions are discussed in Professor Gray’s treatise on “Restraints on the Alienation of Property” published in 1883. The author presents with vigor arguments against the validity of such trusts as being contrary to good morals and against public policy. These objections, however, have not generally prevailed in American jurisdictions, which have usually approved such trusts as valid. The Supreme Court of Illinois declared in favor of the validity of such trusts in Steib v. Whitehead, 111 Ill. 247, decided in 1884. From that time the courts of this State have consistently adhered to the view that trusts of this kind are valid, as in Congress Hotel Co. v. Martin, 312 Ill. 318, where such trust was held valid although consisting of property far exceeding the amount necessary to maintain the beneficiary according to her station in life. In Hopkinson v. Swaim, 284 Ill. 11, where such a trust created in favor of a daughter and which provided that the property should be “exempt from the power and control of any husband and from liabilities for any debts or engagements,” was held valid. In Hartley v. Unknown Heirs of Wyatt, 281 Ill. 321, the court said it was not necessary to use the word “spendthrift” in order to create such a trust, nor was it necessary that the writing should contain an express provision against the alienation of the trust property. “If,” said the court, “it appears from the whole will that the testator intended to create such a trust, such an intention will be given effect.” Cases to the same effect are Bennett v. Bennett, 217 Ill. 434; Wallace v. Foxwell, 250 Ill. 616; Jouvenat v. Continental Nat. Bank & Trust Co., 253 Ill. App. 400.

However, in the States affirmatively adhering to the doctrine of the validity of such trusts, there has appeared a determination to limit the cases in which the rule will be recognized by creating exceptions in certain classes of cases, where it is held upon various theories that the rule should not be applied. In 1 Bogert’s Trusts & Trustees, sec. 223, p. 727, the author states: “Great efforts have been made to get courts and legislatures to make exceptions to their doctrine about spendthrift trusts, in favor of certain creditors with peculiarly powerful claims on the sympathy of the courts. Restatement of the Law of Trusts, Tentative Draft sec. 183. To a certain extent these attempts have been successful. Perhaps the most striking example is found in the case of a spendthrift trust for a married man with a wife and children, where there is a failure to support his family, or there has been a divorce with a decree for the payment of alimony by the husband. It has been urged that the duty to support the wife and children is not a debt but a common law obligation placed upon the husband entirely outside contract principles, and attorneys for the wife have also argued that a spendthrift trust for a married man impliedly includes his wife and children as cestuis, so that an effort to get part of the income on their part is not an effort to break the trust but to have it carried out. Some support for these contentions is to be found in the common law decisions. ’ ’ A large number of these decisions, too numerous to be reviewed in this opinion, are cited in a footnote.

In Restatement of the Law of Trusts, vol. 1, sec. 157, p. 389, the prevailing doctrine is stated as follows:

“Although a trust is a spendthrift trust or a trust for support, the interest of the beneficiary can be reached in satisfaction of an enforceable claim against the beneficiary,
“ (a) by the wife or child of the beneficiary for support, or by the wife for alimony;
“(b) for necessary services rendered to the beneficiary or necessary supplies furnished to him;
“(c) for services rendered and material furnished which preserve or benefit the interest of the beneficiary.” In a caveat the author states that the enumeration of situations in which the interest of thé beneficiary of a spendthrift trust can be reached is not necessarily exclusive.

The leading case holding that such a trust fund may be reached for the support of a wife or child is that of Moorehead’s Estate, 289 Pa. 542,137 Atl. 802. The court there concluded, after reviewing all the facts, that it was not the intention of the testatrix to impose such restrictions upon her estate, but other factors tending to the same conclusion were that such exception would be contrary to public policy as releasing the husband from his primary obligations to society to support his family, and also destructive of the legal unity which common law recognized as existing between husband and wife. The latter argument does not seem quite persuasive when, as here, the trust is created after the unity of the family has been destroyed by a decree of divorce, but the biological reasons which demand that a father support his children is not destroyed by such a decree and was given due weight in the opinion of the court.

The courts of California have reached a contrary conclusion. San Diego Trust & Savings Bank v. Heustis, 121 Cal. App. 675, 10 P. (2d) 158, decided in 1932. The opinion of the court there considers and disapproves of the reasoning in the Moorehead case and describes the Pennsylvania court, as “laboring” to reach the result. The question, so far as the briefs disclose, has never been considered by the Supreme Court of Illinois, but that court and the Appellate Courts have indicated in no uncertain terms that the duty of a father to support his children is not regarded in the light of a merely contractual obligation. On the contrary, the nurture and the training of children of divorced parents in Kelley v. Kelley, 317 Ill. 104, were held to be matters of vital interest to the State, the court pointing out that children are of the parents’ blood, that it is not their fault that their parents may have been divorced, and that a divorce decree does not destroy their right to be given care “by those who brought them into the world until they are old enough to take care of themselves.” That doctrine is expressed in innumerable cases of which we cite a few. Brand v. Brand, 252 Ill. 134; Walgreen Co. v. Industrial Commission, 323 Ill. 194; Union Bank of Chicago v. Wormser, 256 Ill. App. 291. Indeed, the failure of' a father to support his minor children under certain circumstances has been denounced by the legislature of the State as a crime. Ill. State Bar Stats. 1935,, ch. 38, ¶ 2. There are many cases in the books which have sustained convictions for such offence in this andi other States. 22 A. L. R. 795, with Bluebook of Supplemental Decisions. People v. Baker, 222 Ill. App. 451.

Substantially the same question here presented was: raised in England v. England, 223 Ill. App. 549. It was there contended by the trustees that the income from a spendthrift trust which had been created by the last will and testament of Albert T. England could not be subjected to the lien for alimony against the beneficiary, his son, Albert C. England. The opinion, based upon the theory that an intention on the part of the trustor to exclude the wife was not apparent from a consideration of the whole instrument, held that the obligation of the husband to support the wife was not founded upon a debt or contract but was a social obligation based on public policy and for the good of society.

In the later case of Tuttle v. Gunderson, 254 Ill. App. 552, the claim of a wife for alimony and for an allowance for the support and maintenance of her minor child from the proceeds or increment of a fund which had been left in trust to her husband was upheld as against the trustees, although the trust provided that the income and increment should be paid to the beneficiary “in person and not upon any written or verbal order, nor upon any assignment or transfer” by the beneficiary. The court reviewed the authorities in this and other States and said:

“The principles stated in Moorehead’s Estate, in so far as they apply to the instant case, are in accord with England v. England. In the notes to Re Moorehead, 52 A. L. R. 1259, the author says: ‘Except where the trust was a spendthrift trust of the strictest sort, requiring the income to be paid to the beneficiary in per^son, and no one else (as in Board of Charities & Correction v. Lockard (1901) 198 Pa. 572, 82 Am. St. Rep. 817, 48 Atl. 496), the courts have uniformly construed provisions for the- protection of the beneficiary from the claims of creditors or the consequences of his own improvidence, as not preventing the income of the trust from being subjected to the support of the beneficiary’s wife and minor children. See England v. England, (Ill.) supra; Gardner v. O’Loughlin (1912), 76 N. H. 481, 84 Atl. 935; Eaton v. Eaton (1924), 81 N. H. 275, 35 A. L. R. 1034, 125 Atl. 433, s. c. on subsequent appeal in (1926), 82 N. H. 216, 132 Atl. 10; Pruyn v. Sears (1916), 96 Misc. 200, 161 N. Y. Supp. 58; Re Morehead (reported herewith) ante, 1251; Decker v. Directors of Poor (1888), 120 Pa. 272, 13 Atl. 925; Board of Charities & Correction v. Moore (1888), 6 Pa. Co. Ct. 66, 19 Phila. 540, 45 Phila. Leg. Int. 216; Board of Charities & Correction v. Kennedy (1894), 3 Pa. Dist. R. 231, 34 W. N. C. 83.’ After a careful consideration of the instant contention of the appellants, we have reached the conclusion that it is without merit.”

The trustees here rely upon section 49 of the Chancery Act (Cahill’s Ill. Rev. St. 1933, ch. 22) but the provisions of that statute are applicable only to merely contractual obligations.

The trustees contend also that even if a creditor of a beneficiary of a trust could obtain satisfaction in equity out of funds in the hands of the trustees, it would be improper to decree future payments by the trustees which the beneficiary did not then owe to the creditor. In this class of cases the court retains jurisdiction and will be able to decide each situation as it arises upon equitable principles.

We hold that because the will creating this trust fund does not expressly disclose an intention to the contrary, because the claim for support of children is one which transcends any contractual obligation, and because of the recognition in our law of the unity of the family, the court did not err in subjecting the income from this trust fund to the support of the minor children of the beneficiary. The weight of authority sustains this determination. Griswold, Spendthrift Trusts, 1936, p. 292, ch. V, secs. 331-340.

The decree is therefore affirmed.

Affirmed.

McSurely, P. J., and O’Connor, J., concur.


text:
    Tony Panzarella, Appellee, v. J. H. Shaw, Appellant.
    Gen. No. 38,619.
    Opinion filed March 2, 1936.
    Cecil L. Cass, of Chicago, for appellant.
    Louis Jaffie, of Chicago, for appellee.
   Mr. Justice Matchett

delivered the opinion of the court.

Plaintiff, Panzarella, sued Shaw before a justice of the peace for rent claimed to be due under a hold-over lease and obtained judgment. Defendant, Shaw, appealed to the circuit court, and there filed a plea of res adjudicata based upon a prior judgment rendered in the municipal court of Chicago in a suit between the same parties based upon the same written lease. July 5, 1935, there was a trial by the court, some evidence heard, other evidence excluded, and the court made a finding in favor of plaintiff for $315.50, entered judgment thereon, from which defendant appeals to this court.

There is practically no dispute as to the facts. The record of the prior action was introduced in evidence and showed that on July 21, 1933, plaintiff obtained a judgment by confession against defendant for rent for the months of May and June, 1933, as shown by plaintiff’s statement of claim filed in the municipal court of Chicago July 20, 1933. The lease upon which that suit was based by its terms expired April 30, 1933. On motion of defendant an order was thereafter entered opening up the judgment and giving defendant leave to appear and make defense, the affidavit in support of the motion to stand as an affidavit of merits in the cause. This affidavit of merits stated that defendant after the expiration of the. lease, April 30, 1933, remained in the premises during the month of May under an oral agreement with plaintiff that at the expiration of that time defendant would vacate the premises. The affidavit also averred that the rent for the month of May was paid in full. This cause was heard in the municipal court by Judge Lyle, and on May 18, 1934, there was a finding by the court in favor of defendant with judgment thereon. From this judgment plaintiff prayed an appeal, which was allowed but never perfected. However, thereafter, plaintiff began this suit against defendant in the justice of peace court on the same lease to recover rent for the period of July, 1933, to April, 1934, inclusive. This suit was based upon the same lease upon which the former action in 'the municipal court of Chicago was based.

Upon the trial in the circuit court, defendant in support of his plea of res adjudicata introduced in evidence a transcript of the proceedings in the municipal court of Chicago, as already recited, and Judge Lyle, before whom the former suit was ..tried, testified that he was the trial judge in that suit and recalled it, and that he found in that action that there was no arrangement to hold-over under the lease. Defendant called plaintiff as a witness and undertook to examine him concerning the former suit, but the court (upon what theory, we do not know) held that plaintiff was not a competent witness and then struck out the evidence of Judge Lyle as improper and incompetent. The attorney for defendant then testified that he had been defendant’s attorney in the former suit and gave evidence tending to show that the issue of fact in that case was whether there was a hold-over lease. This evidence was also erroneously stricken by the court as improper and incompetent. Notwithstanding, it clearly appears (prima facie, at least) from the evidence in the record that the issue of fact as to whether there was a holding over under the old lease was submitted to the municipal court in the suit tried there before Judge Lyle. The parties and the issues being identical, the question was adjudicatedin the first trial and under well-established rules of law could not be tried a second time between the same parties. The authorities, it is believed, are unanimous to this effect. A few may be cited: Louisville, N. A. & C. Ry. Co. v. Carson, 169 Ill. 247; People v. Circuit Court of Washington County, 347 Ill. 34; Wood v. Maxwell, 238 Ill. App. 597; Launtz v. Russek Furniture Co., 247 Ill. App. 289.

It is also well settled that upon the trial of a plea of res adjudicata, parol evidence is admissible in order to show what issues of fact were litigated in the former suit. Shepard v. Butterfield, 41 Ill. 76; Leopold v. City of Chicago, 150 Ill. 568; City of Weatherford v. Nuveen, 211 Ill. App. 411. The offered evidence of the attorney for defendant was admissible, and, we think, under the particular circumstances he was not subject to criticism for offering to testify. Moody v. Norton, 192 Ill. App. 8; Bogart v. Brazee, 331 Ill. 160.

The contentions of plaintiff that under an agreement to pay money in instalments, an action will lie for each instalment as it becomes due; that where rent is thus payable at stated intervals a separate action may be brought for each instalment; that the best evidence to establish the existence and terms of a judgment is the record of it, and that the minutes of a judge on his docket, etc., cannot be substituted for the record of the court, are all true generally, as the cases cited by plaintiff show, but are not applicable to the facts of this case.

From what has already been said, it is apparent under the uncontradicted evidence the finding of the court should have been for defendant with judgment in his favor. The judgment will therefore be reversed without remanding.

Reversed.

McSurely, P. J., and O’Connor, J., concur.


author: Mr. Justice O’Connor McSurely, P. J., Matchett, J.,

text:
    The Prudence Company, Inc. and The Prudence Bonds Corporation, Appellants, v. Illinois Women’s Athletic Club et al. v. Maurice H. Berkson, Appellee.
    Gen. No. 38,316.

      Opinion filed March 2, 1936.
    Rehearing denied March 16, 1936.
    Vernon R. Loucks and A. J. Hennings, both of Chicago, for appellants.
    Deneen, Healy & Lee and Samuel Berks, all of Chicago, for appellee Maurice H. Berkson; Charles S. Deneen, Donald N. Schaffer and Mayer Goldberg, all of Chicago, of counsel.
    Mark D. Yellon and Kelly & Cohler, all of Chicago, for appellee I & I Holding Corp.; Mark D. Yellon, James J. Kelly and J. Robert Cohler, all of Chicago, of counsel.
   Mr. Justice O’Connor

delivered the opinion of the court.

By this appeal complainants seek to reverse two orders entered by the superior court of Cook county by which the report and account of the receiver and his supplemental report and account were approved and confirmed. Judgment was also entered against complainants in favor of the receiver for the benefit of himself and his solicitor and certain creditors of the defendant Illinois Women’s Athletic Club in the sum of $55,300.86, being the amount of the deficit which accrued during the receivership. This amount was also taxed against the property involved in the foreclosure suit.

The record discloses that on March 15, 1932, the Prudence Company, Inc., filed its bill against the Illinois Women’s Athletic Club, a corporation, for the foreclosure of a trust deed for a part of the indebtedness secured by the trust deed. The trust deed secured an indebtedness of $1,600,000, and another note for $150,000. There was a decree of foreclosure as prayed for and on January 10,, 1933, after the property was sold by the master, a deficiency decree was entered for $224,203.76.

The record further shows that on February 24, 1932, the International & Industrial Securities Corporation recovered a judgment against the defendant Illinois Women’s Athletic Club in the circuit court of Cook county for $139,153.90, and execution was issued and returned wholly unsatisfied. March 11, 1932, the International & Industrial Securities Corporation commenced an action in equity in the United States District Court for the Northern District of Illinois, Eastern Division, against the Illinois Women’s Athletic Club for the marshaling of liens and the appointment of a receiver for the Illinois Women’s Athletic Club.

Pursuant to such application two receivers were appointed by the United States court. Four days afterward complainant in the instant case, by leave of the United States court, filed its bill to foreclose. The receivers appointed by the United States court qualified, and on March 22, 1932, by an order of the superior court they were also appointed receivers of the property in question, and operated the premises, which consists of a large building 17 stories in height, nine of which were used for commercial purposes and the balance by the Illinois Women’s Athletic Club for club purposes. The receivers operated the property in the United States court procedure until November 22, 1932, when that proceeding was dismissed and thereafter, as receivers of the superior court, operated the property until May 26, 1933, a little over 14 months, and on that date they were permitted to resign, their final report and account having been approved. In this report the receivers stated that the operation of the property by them was resulting in a deficit of about $1,000 a month.

April 15, 1933, complainants filed a verified petition in which they set up the entry of the deficiency decree for $224,203.76; that the court had theretofore entered an order fixing the rental which was to be paid by defendant Illinois Women’s Athletic Club for the use of certain floors of the premises at $2,500 a month; that the receivers had been unable to collect sufficient money to pay the operating expenses, that the rental fixed for the Athletic Club was not a reasonable rental and should be increased; that the receivers were unable to collect the $2,500 a month and the prayer was for a writ of assistance to compel the vacation of the premises by the Illinois Women’s Athletic Club; that if a reasonable rental were obtained for the premises occupied by the Athletic Club, the revenue from the building would be more than sufficient to pay up the deficit incurred by the receivers and the operation of the building would show a profit of more than $3,750 a month. Five days later, April 20, 1933, complainants filed another petition in which they set up the resignation of the two former receivers and that a successor receiver should be appointed to take charge of the premises on account of the deficiency decree. Afterward, on May 20th, a writ of assistance was issued; the Athletic Club apparently evicted, and on May 26, 1933, an order was entered which recited the entry of the deficiency decree, the discharge of the prior receivers, and that it was necessary to collect the rents to pay the deficiency and to preserve the- property. It was then ordered that Maurice H. Berkson be appointed successor receiver, and that ‘ the complainants give bond in the penal sum of one thousand dollars to the adverse parties, conditioned to pay all damages, including reasonable attorneys’ fees sustained by the appointment of such successor receiver in case the appointment of such successor receiver is revoked or set aside.” It was further ordered that Berkson give bond in the sum of $20,000 for the faithful performance of his duties. Berkson qualified and acted as receiver from the date of his appointment to February 1, 1935, or a period of about 20 months, almost 10 months after the period of redemption had expired and after a master’s deed had been issued. The period of redemption expired about April 10, 1934, and the master’s deed was issued April 16, 1934, to James R. Scott.

December 14, 1933, Berkson filed his petition to which was attached his account showing receipts and disbursements covering the first six months of his operation. The receipts totaled $44,914.66 and the disbursements $42,646.05, leaving a balance of $2,268.61, made up of $1,831.75 on deposit with the City National Bank & Trust Co., $55 in cash, and tax warrants in the sum of $381.86. The petition further set up that neither the receiver nor his solicitor had received any compensation and that a fair, reasonable fee for the receiver would be $3,000 and $2,250 for the solicitor. The prayer was that these amounts be allowed and the report approved. On the same day an order was entered in accordance with the prayer of the petition.

May 15, 1934, the receiver filed a petition wherein he set up that a substantial portion of the building was occupied and that he was obliged to furnish water to several tenants; that the water pump was in bad condition and needed repairing, and that there was a deficit in the operation of the property; that a master’s deed had been issued and the grantee therein had theretofore filed a petition asking that an order be entered directing the receiver to deliver up possession of the property, and the prayer was for instructions of the court.

May 25, 1934, which was a little more than a month after the period of redemption had expired, and about 10 days after the master’s deed had issued, the successor receiver filed his “final account and report.” On the same day the complainant filed objections to the report. Afterward the motion of complainants that the receiver be ordered to turn over the property to the holder of the master’s deed, and the hearing on the successor receiver’s report, to which objections had been filed, were both apparently continued from time to time by the court on the ground that they could not be heard by the court because of other pressing business. The receiver continued to operate the property and on January 22, 1935, filed his supplemental report and account which set up in considerable detail the receipts and disbursements.

On the same date an order was entered giving three days within which to file objections and on January 25th complainants filed objections. The next day an order was entered overruling complainants’ objections and approving the receiver’s second report and account covering the period from December 1, 1933, to May 15, 1934. By this order the successor receiver’s compensation for his services was fixed at $4,850 and his solicitor’s at $4,850. The order also found that neither of these amounts had been paid, that there was a deficit of $51,654.98, and it was ordered and decreed that the Prudence Company, Inc., and Prudence Bonds Corporation were each jointly and severally liable and they were ordered to pay the successor receiver the $51,654.98 within 30 days, and that in default thereof an execution issue. And it was further adjudged and decreed that the successor receiver be given a valid first lien on the premises as further security, and that he and his solicitor be given a lien prior to the other creditors of the successor receiver. Complainants excepted to this order.

April 24, 1935, the receiver filed a further petition and his supplemental report covering the period from January 1, 1935, to February 20, 1935. This showed a further deficit, the total amount of which then was $55,300.86.

On the same day complainants filed objections to this supplemental report, but they were overruled on the same day and an order entered fixing the total deficit at the amount last above stated and ordering that it be paid as provided by the prior order of January 26, 1935.

Complainants contend that the court erred in overruling, without a hearing, their objections to the receiver’s two reports and accounts above mentioned; that the objections called for strict proof as to the receipts and disbursements, and that the court was wholly unwarranted in overruling the objections and approving the reports and accounts without a hearing on the merits. We think it obvious that this contention must be sustained.

Complainants’ contention seems to be conceded by counsel for the receiver, but they say that complainants are precluded from questioning the orders since they failed to preserve any record of what transpired at the times when the two orders were issued, and that since the “orders did not show affirmatively that the court heard no evidence, but rather did not expressly state that evidence was heard,” therefore the orders are sufficient under subsection 3 of section 64, ch. 110, Ill. State Bar Stats. 1935, which provides: “No special findings of fact or certificate of evidence shall be necessary in any case in equity to support the decree.” And they also cite the case of First Nat. Bank v. 10 W. Elm St. Bldg. Corp., 277 Ill. App. 337, to the effect that the burden of preserving the evidence is upon the person attacking an order or decree. We hold the contention of the defendants cannot be sustained because the record before us shows that no evidence was heard. The order of January 26, 1935, recites the motion of the receiver for the approval of his second report and that “the court having read and examined the accounts and reports of the receiver, as aforesaid, and the objections thereto, by the Complainant, . . . and having heard arguments of counsel” finds, etc. And the order of April 24, 1935, is substantially the same. The statute relied upon by counsel for the receiver above quoted, and the rule announced in 277 Ill. App., apply only where the record shows evidence was heard but not preserved. No evidence having been heard, the court was wholly unwarranted in disposing of the objections to the reports without a hearing.

Complainants further contend that they are not personally liable for any deficit occasioned by the receiver. In reply to this, counsel for the receiver say that while ordinarily a complainant in a foreclosure suit is not liable for any deficit incurred by the receiver, yet the facts and circumstances in the instant case take it out of the ordinary rule; that in the instant case complainants procured the- appointment of the successor receiver with “full knowledge of the operating loss incurred by the predecessor receivers,” and that this justifies the court in entering judgment against the complainants for the deficit. On the other hand, counsel for complainants say that although a deficit accrued during the operation of the building under the prior receivers, this was brought about in a great part by the fact that the defendant Illinois Women’s Athletic Club was occupying several floors of the building and was not required to pay an adequate rental therefor; that complainants had petitioned for and secured a writ of assistance ousting the Athletic Club from the premises and it was thought that the space could be re-rented for a considerable increase which would be more than sufficient to pay the back deficit; that there was a deficiency decree of more than $224,000 and therefore complainants were entitled to a receiver.

They further contend that the first report made by the successor receiver covering a period of six months of his operation of the building, tended to indicate that there was more than $2,200 profit during that period, excluding the payment of fees, etc., that it was only in one of the subsequent reports filed by the receiver that complainants first learned that the property was being operated at a great loss, and that as soon as they were advised of this situation they moved to have the receiver discharged.

In Atlantic Trust Co. v. Chapman, 208 U. S. 360, it was held that while cases may arise in which it may be equitable to charge a complainant, at whose instance a receiver is appointed, with the expenses of the receivership, yet to warrant this there must be special circumstances; that the general rule in such cases is that the expenses are charged upon the property or fund without personal liability on the part of the complainant, and that mere inadequacy of the fund to meet such expenses does not warrant holding the complainant, who has not been guilty of any irregularity, liable.

In Miller v. American Light & Fixture Co., 181 Ill. App. 623, the court said (p. 628): “The proposition set forth in appellant’s brief and argued is this: ‘The mere fact that the property in the hands of the receiver is insufficient to meet the expenses of the receivership, does not of itself render the plaintiff, at whose instance the receiver was appointed, liable for those expenses. ’

“The truth of that proposition is not questioned here, and must be regarded as sound and well supported by the case of Atlantic Trust Co. v. Chapman, 208 U. S. 360. The main doctrine of that case is that as soon as a receiver is qualified he comes under the sole direction of the court, is the court’s officer, and his engagements are those of the court, and are performed under the order and directions of the court, and the liabilities he incurs are chargeable upon the property and not against the parties at whose instance he was appointed, and who have no authority or control over him and his actions. ”

In the instant case a successor receiver was appointed on motion of the complainants. He was represented by his own solicitor; he was operating under the ‘ ‘ sole direction of the court”; he was the “court’s officer” and “his engagements are those of the court” and were “performed under the order and directions of the court. ’ ’ It was his duty to keep the court and complainants advised that the property was being operated at a loss. And counsel for complainants contend that the receiver failed to perform his duty in this respect, but on the contrary made misleading reports; the record indicates that this was so.

Other authorities sustaining the rule announced by the U. S. Supreme Court in the Chapman case are: McLean v. Gillespie, 130 Ill. App. 356; Farmers’ Loan Co. v. Oregon Pac. R. Co., 31 Ore. 237; Meili v. Crane, 102 Cal. App. 144, 282 Pac. 960; Burnrite Coal Co. v. Riggs, 274 U. S. 208, and many others. Complaint is also made that the court erred in allowing the receiver and his solicitor large fees and that they should be allowed nothing, having operated the property as disclosed by the record.

We do not pass on the question whether a judgment should be entered against the complainants in this case for part or all of the deficit; nor do Ave pass on the question whether the fees awarded the receiver and his solicitor, or any part of them, should have been allowed, for the reason that there was no hearing on these questions. Moreover, the record discloses that the foreclosure in the instant case was for but a part of the indebtedness on the property in question and that there was subsequently another foreclosure suit for the remaining indebtedness, which apparently was $1,600,000 and which Avas secured by the same trust deed and in which proceeding a third receiver was appointed. This second foreclosure and receivership may have some bearing on the question whether complainants were liable to pay the deficit involved here, or any part of it.

The I & I Holding Corporation has filed a brief in this court and says that it is not primarily concerned in the controversy between complainants and the successor receiver, but says that in so far as the orders appealed from “fix complainants’ liability to and the lien of this appellee, are (a) that the complainants are personally liable for the amount due to this appellee for the reasons that the orders of July 14, 1933, and December 30, 1933, taxed such costs against complainants and became final and binding, and the subsequent orders of January 26, 1935, and April 24, 1935 [being the two orders appealed from by complainants] merely ratified and affirmed complainants’ liability, and that independently of said construction of said orders, the court, by virtue of said orders, properly taxed said costs against complainants under” sec. 18, ch. 33, Revised Statutes, “that this appellee is also entitled as a cumulative remedy to a first and prior lien against the property herein foreclosed.” The difficulty with this contention is that the orders of July 14th and December 20, 1933, did not tax the amount claimed by the I & I Holding Corporation against the complainants but taxed it “as part of the costs of this proceeding.” Furthermore, we are of opinion that the claim of the I & I Holding Corporation cannot be intelligently disposed of without a hearing, as above suggested.

For the reasons stated the orders of the superior court of Cook county appealed from are reversed and the matter remanded for further proceedings in accordance with the views herein expressed.

Reversed and remanded.

McSurely, P. J.,

specially concurring: For the reason that the trial court did not properly try the objections to the receiver’s reports, I concur in the above conclusion.

Matchett, J.,

specially concurring: I concur in the judgment that these orders should be reversed but do not agree with what is said in the opinion as to the possible liability of complainants who procure the appointment of a receiver under circumstances here appearing. I think the rule announced in German Nat. Bank v. Best, 32 Colo. 192, 75 Pac. 398, applicable.


author: Mr. Presiding Justice McSurely

text:
    Sun Life Assurance Company of Canada, v. Vera Williams, Appellee, and Carl S. Williams, Appellant.
    Gen. No. 38,650.
    Opinion filed March 23, 1936.
    Walter E. Beebe, of Chicago, for appellant.
    Benjamin H. Ehrlich, of Chicago, for appellee; Aaron H. Cohn, of Chicago, of counsel.
   Mr. Presiding Justice McSurely

delivered the opinion of the court.

Vera Williams, the divorced wife of Weir Williams, and Carl S. Williams, his father, are rival claimants for the proceeds of an insurance policy issued by plaintiff on the life of Weir Williams, now deceased. The Sun Life Assurance Company of Canada, a corporation, plaintiff, filed its bill of interpleader in court and deposited $9,451.81, the proceeds of the policy; answers and amended answers were filed by both claimants; the court awarded the proceeds to Vera Williams, and Carl Williams appeals.

Vera Williams was the beneficiary in the policy when issued; the insured attempted to change the beneficiary to Carl S. Williams; we are asked to determine whether this attempted change was effective.

There is virtually no dispute as to the facts. May 5, 1930, plaintiff issued its policy of insurance on the life of Weir Williams in the sum of $10,000, naming Yera Williams, his wife, as beneficiary; the lesser amount deposited in court by the plaintiff is due to the fact that the insured borrowed a certain sum against the loan value of the policy, which was deducted from the amount called for on the face of the policy.

The policy contains a provision as follows:

“This policy is issued with the express understanding that, provided he has not assigned it or any interest therein, the assured may, without the consent of the beneficiary, (a) change the beneficiary or beneficiaries from time to time during the continuance of this policy by filing with the- Company a written request in such form as the Company may require, accompanied by this policy, such change to take effect only upon the endorsement of the same on the policy by the Company. ’ ’

May 20, 1935, Weir Williams and Vera, his wife, were divorced; June 20th the insured executed, on a form supplied by the insurance company, a request that the beneficiary be changed to “Carl S. Williams, father”; the insured died on the same day, June 20, 1935; two days later proofs of his death were filed with the company; the request for change of beneficiary was received at the home office of the company on June 25th and the company acknowledged receipt; on June 27th the change of beneficiary from Vera Williams to Carl S. Williams was indorsed on the policy.

Vera Williams says that because the indorsement of the change of beneficiary was not made on the policy until after the death of the insured it was ineffective. Carl Williams says that where the insured has done all required of him to change the beneficiary, the indorsement on the policy is merely a ministerial act, for the protection of the insurance company, and when made effectually accomplishes the change.

The first position finds support in Freund v. Freund, 218 Ill. 189, McEldowney v. Metropolitan Life Ins. Co., 347 Ill. 66, and Equitable Life Assur. Soc. v. Stilley, 271 Ill. App. 283. The last two cases are bottomed on the opinion in the Freund case, although the McEldowney case was, primarily, based on the fact that there was no sufficient request made to the company for a change of beneficiary. The Freund case rested upon a statute of the State of New York, the home State of the insurance company, which was to the effect that no change of beneficiary could be accomplished except by the indorsement of the same upon the policy, which indorsement was never made. In the present case plaintiff’s home office is in Montreal, Quebec, which has no statute like that in New York. But this is not important, as the provision in the instant policy is substantially like the New York statute.

Kavanagh v. New England Mut. Life Ins. Co., 238 Ill. App. 72, involved facts similar to those in the instant case. The Appellate Court did not apply the law as announced in the Freund case but distinguished the case before it from that case in that the decision in the Freund case was based largely on a statute of the State of New York, in which the insurance company was incorporated, and that the company never consented to the change of beneficiary. The decision in the Freund case has been the subject of criticism by courts in other jurisdictions. In 78 A. L. R. 974, it is said that by the great weight of authority a change of beneficiary can be accomplished without a complete compliance with the conditions of the policy regarding the indorsement of the insurer. This is followed by a long list of supporting decisions in other jurisdictions. In Barrett v. Barrett, 173 Ga. 375, the opinion commented upon the Freund case and refused to follow it. In McDonald v. McDonald, 212 Ala. 137, the court referred to the Freund decision, noting that it seems to have been governed in large part by a statute of the State of New York, and saying, “But, however that may be, by the weight of authority and what appears to us to be the better reason, we are led to” a contrary conclusion.

An examination of decisions in New York indicates a similar divergence of views from that expressed in the Freund case. White v. White, 194 N. Y. S. 114, involved facts like those in the instant case. There the insured on August 30, 1921, signed a request for a change of beneficiary; he died on the same day; the request reached the office of the insurance company one or two days thereafter; the policy contained a provision that a change of beneficiary shall take effect upon the indorsement of such redesignation of beneficiary upon the policy, “and not before,” — a provision substantially the same as the New York statute. The court said this provision “is clearly placed in the contract by the insurer for the protection of the company itself, to avoid a multiplicity of claimants, and can be used by such insurer as a defense in an action at law to recover the amount of the policy; but such defense can be waived by the company insuring, as in this case, by its indorsing such new designation thereon, and further by its paying the money into court and refusing to defend. The neglect to make this indorsement is not available in an action brought by a beneficiary to nullify the act of the insured in making a redesignation of a new beneficiary.” (Citing a number of cases.) The court further said:

“The main contention here is that the insured did not comply with the regulations of the contract as to change of beneficiary, and that therefore the attempted transfer was void, and that the defendant did not acquire any right, title, or interest by this so-called re-designation. Many cases bearing on the question here involved are cited, and from an examination of them it will appear that, while a change of beneficiaries must be made under certain formalities for the protection of the insurer, yet, in cases where the company has waived defending by interpleading, and has paid the money into court, and has no further interest in the litigation between the parties, a far more liberal rule obtains, and that courts of equity seek to do that which the insured apparently intended to have done. . . . ” That opinion points out the distinction in Thomas v. Thomas. 131 N. Y. 205, cited here by counsel for Vera Williams. In the latter case the insured attempted to add an additional beneficiary by merely inserting the name of the new beneficiary in the certificate of insurance; under the by-laws of the company each member was required to apply for such a change, surrender the certificate and receive another; it was held there was no valid change of beneficiary. The opinion in the White case notes a number of other cases decided in New York, as well as other States, and held that when the insured exercised his right to change the beneficiary the company became bound to make the change requested. An officer of the insuring company testified in that case that the indorsement on the policy was not “a consent” but is “an indorsement of the change made by the insured. ’ ’

This construction seems to us in accord with reason. The designation of a beneficiary in the first instance is left to the exclusive wish of the insured; the insuring company is not concerned, except to be informed of the name of the beneficiary; where the right to redesignate the beneficiary is reserved in the policy the insuring company is no more concerned than in the first instance ; the change is not conditioned upon the consent of the insurer; the change, so far as any beneficiary is concerned, is effected when the insured in due form makes the change; the indorsement by the insuring company merely registers the name of the new beneficiary.

This construction of the provision disposes of any question of a vested interest in the first named beneficiary. When the beneficiary is redesignated by the insured all interest of the prior beneficiary is terminated.

The written indorsement may be waived by the company, but the indorsement on the policy registers the intention of the company to recognize the new beneficiary, and where, as here, the company makes no defense as to liability, but by interpleader brings the money into court, it makes a further recognition of its duty to make the indorsement as requested by the insured.

Other points are raised by counsel which, in view of what we have said, it is unnecessary to discuss. Our conclusion that the provision in the policy is for the protection of the insurance company, whose action in this respect cannot be questioned by a former named beneficiary, determines the decisive question in this case.

For the reasons indicated the decree is reversed and the cause is remanded, with directions to award the fund brought into court by the company to Carl S. Williams.

Reversed and remanded tuith, directions.

Matchett and O’Connor, JJ., concur.


text:
    Virginia Kaufman Levy, Appellant, v. F. E. Nellis et al., Appellees.
    Gen. No. 38,713.
    Opinion filed March 23, 1936.
    Arnold Seeder, of Chicago, for appellant.
    Pritzker & Pritzker, of Chicago, for appellees; Richard Weinberger, of Chicago, of counsel.
   Mr. Presiding Justice McSurely

delivered the opinion of the court.

April 10, 1926, defendants entered into a trust agreement purporting to create the South Water Market Improvement Association. This appeal presents the question whether this created a valid common law trust or a partnership. The trial court held for the common law trust, and plaintiff appeals.

Plaintiff filed her complaint in chancery against F. E. Nellis, C. R. Godding, J. W. Shafton and Harry Snyder, as trustees of the South Water Market Improvement Association, and also against certain other named defendants, who were subscribers to the trust agreement. The plaintiff sought recovery upon three promissory notes on which there was an unpaid balance of $12,950; they were signed “Harry Snyder, F. E. Nellis, J. W. Shafton, C. R. Godding — As trustees under an instrument dated at Chicago, Illinois, April 10, 1926, creating the South Water Market Improvement Association, and not individually.” Edmund Kaufman, the payee in the notes, died and plaintiff received them as part of her distributive share of his estate.

Plaintiff asked for judgment against the makers of the notes as partners, that the trustees be directed to call upon those subscribers who have failed to pay their subscriptions in full for the payment of the balance of their subscriptions; that a receiver be appointed to take over the assets of the trust. Plaintiff asked the court to hold that the trust agreement did not create a valid common law trust but created a partnership, and asked for judgment against all of the defendants for the amount due.

Defendants filed motions to dismiss the complaint, asserting among other things that the agreement did not create a partnership but did create a common law trust. The trial court held with defendants on this point and dismissed the complaint as to the defendants making the motion. Plaintiff appeals from this order.

The trust agreement is too lengthy to be quoted in full in this opinion. It recites that the South Water Market District, Chicago, Illinois, has been organized by a large number of commission merchants with businesses in the district, and that the subscribers to the agreement are interested in promoting the success of the district and generally in developing it, and for these purposes the subscribers covenanted and agreed to and with each other that certain parties appointed as trustees shall attempt to collect all moneys subscribed under the agreement and that all such moneys and all other property held by the trustees shall become a part of this trust, to be held by the trustees as joint tenants.

It was further provided that the trustees shall have full power and authority (a) to purchase, sell, exchange or lease any of the building units located in the district; (b) to purchase, sell or exchange, or perform any contracts with reference to the acquisition or disposition of any of said units; (c) to loan any and all moneys belonging to the trustees in furtherance of the purposes of the trust; (d) to borrow any moneys for the same purposes; (e) to dispose of any businesses located in the district; (f) to alter or operate any of the units in the district; (g) to mortgage any real or personal property; (h) to exchange, lease or mortgage,' or dispose of any rights in any property or businesses in the discretion of the trustees; (i) to have all powers and authority requisite or helpful in generally promoting the development of the district and the businesses therein conducted, and to have the same power and authority in connection with any property in the hands of the trustees as they would have if they were the joint owners of the property free and clear of this trust.

Neither the trustees nor any of the beneficiaries shall be personally liable for any moneys borrowed or for any other liabilities incurred or assumed by the trustees or beneficiaries unless they shall have expressly undertaken to become so liable, and all persons dealing with the trustees shall look only to the property of the trust for the payment of their claims. It was provided that every instrument to which the trustees should be parties on account of which any liability may be created against the trustees shall substantially express this provision. The trustees were empowered to rent offices and hire help, also to settle and compound any claims made against the trustees; the trustees were to be paid no salary for their services as trustees. There was quite a detailed provision as to the manner in which the trustees should handle the finances of the trust; it provided that the beneficiaries in the trust shall have no rights “of possession, management or control of the trust estate” nor any property rig'hts in any of the property forming part of the trust estate; the rights of the beneficiaries should be solely against and through the trustees, who. shall be the absolute representatives of all subscribers or beneficiaries. There were provisions for meetings of the trustees, who may make such by-laws and other rules as they may deem proper.

There was a provision for meetings of the subscribers or beneficiaries, to be held on the third Monday of February in each year; special meetings might be called upon three days’ written notice. There seems to be no provision as to what the beneficiaries might do at these meetings.

The trustees should hold office for a period of five years from the date of their appointment, but during the period of any vacancy in the office of trustee a majority of the remaining trustees may take any action authorized, and any such vacancy may be filled for the unexpired term by a majority vote of the remaining trustees; any vacancy in the office of trustee by reason of the expiration of the terms of such trustee shall be filled by appointment by a majority in amount of the holders of the beneficial certificates. The trust terminated March 1, 1942. The terms of the trust agreement might be amended by vote of two-thirds in amount of the holders of the certificates of beneficial interest and such amendment shall be binding upon the beneficiaries and upon the trustees, and also upon third parties whose rights accrue after such amendment.

In the opinion in Schumann-Heink v. Folsom, 328 Ill. 321, is a comprehensive discussion of common law trusts and their differences from a partnership. The opinion notes that a partnership is a contract of mutual agency, each partner acting as a principal in his own behalf and as agent for his co-partner; that where under the declaration of trust the unit holders retain control over the trustees and have authority to control the management of the business the partnership relation exists. On the other hand, where the declaration of trust gives the trustees full control- in the management of the business of the trust and the certificate holders are not associated in carrying on the business and have no control over the trustees, then there is no partnership.

Many decisions are cited in which the courts have .attempted to determine what degree of control remaining in the beneficiaries or certificate holders rendered the organization a partnership. Among these cases are. Frost v. Thompson, 219 Mass. 360; Neville v. Gifford; 242 Mass. 124; Whitman v. Porter, 107 Mass. 522; Liquid Carbonic Co. v. Sullivan, 103 Okla. 78, 229 Pac. 561; Haskell v. Patterson, 165 Ark. 65; Dana v. Treasurer & Receiver General, 227 Mass. 562; Priestley v. Treasurer & Receiver General, 230 Mass. 452; Nini v. Cravens & Cage Co. (Tex. Civ. App.), 253 S. W. 582; Simson v. Klipstein, 262 Fed. 823; and Morehead v. Greenville Exch. Nat. Bank (Tex. Civ. App.), 243 S. W. 546. These and. other cases hold that where the trustees have full and exclusive control of the management of the business of the trust and the certificate holders have no control of the trustees, it is a valid trust and there is no liability as partners.

In the present case it hardly needs argument to show that the trustees had exclusive power to control the business. The trust agreement goes into great detail, covering all phases of the management of the business of the trust, and gives the trustees full power and authority to conduct such business as the trustees would have if they were joint owners of the property free and clear of the trust. This is emphasized in the provision that “The rights of all beneficiaries hereunder shall be subject to all of the terms and provisions hereof and all beneficiaries shall be bound hereby. The beneficiaries shall have no rights of possession, management or control of the trust estate, nor any property right in any of the real or other property forming part of the trust estate. ...”

The only debatable question is whether, by the terms of the agreement, the beneficiaries had control of the trustees. Plaintiff says this control is given by the provisions that the holders of the beneficial certificates shall fill vacancies in the office of trustee when the terms of such trustees have expired, that meetings of the beneficiaries shall be held on the third Monday of February in each year, that special meetings may be called upon three days’ written notice, and that the terms of the trust agreement may be amended by vote of two-thirds in amount of the holders of the certificates, It should be noted that the trustees were elected for terms of five years and could not be removed during this time; that if there was a vacancy the remaining trustees had the sole right, for a period of 10 days, to fill vacancies.

Hart v. Seymour, 147 Ill. 598, involved the title to real estate held under a trust agreement which it was sought to set aside in the litigation. To this end was invoked a provision in the trust agreement that the shareholders were empowered to remove a trustee, and in case of a vacancy to appoint a successor in trust, and a majority of the shareholders were empowered, at a regular meeting, to direct and .control the action of the trustees. None of these powers had been exercised, and it was held that the mere existence of these reserved powers, not called into exercise, could not divest the trustees of the title to the real estate. In Goldwater v. Oltman, 210 Cal. 408, the trust agreement provided that two-thirds of the shareholders could terminate the trust' without the consent of the trustees, that the trustees could not make a mortgage without the consent of two-thirds of the shareholders, and that the trust agreement could not be amended without the consent of two-thirds of the shareholders. As the question of the classification of such agreements apparently arose for the first time in California the court gave an exhaustive study to the matter, citing many cases, especially those of Massachusetts, which was recognized as the home State of this type of trust. It was held that the powers reserved to the shareholders fell short of malting the trustees their mere agents, and that the limitations on the powers of the trustees leave the trustees the masters and did not confer upon the subscribers that degree of ultimate control that made the organization a partnership rather than a trust. The opinion in the California case was discussed at some length in Review Printing & Stationery Co. v. McCoy, 276 Ill. App. 580, where the agreement was held to create a valid trust, relieving the trustees of personal liability. In Cox v. Hickman, 8 H. L. Cas. (Eng.) 267, it was held that the power in the beneficiaries to hold meetings, to make rules for the conduct of the business by the trustees or to terminate the business altogether by a majority vote, was not a sufficient control by the beneficiaries to make the organization a partnership rather than a trust. Krey Packing Co. v. Hitchings (Mo. App.), 18 S. W. (2d) 123, held that a trust agreement giving the shareholders power to appoint an advisory committee which directed the trustees was a valid trust. Rice v. Rockefeller, 134 N. Y. 174, held that power given the shareholders to elect successor-trustees was a valid trust. In Reichert v. Missouri & Illinois Coal Co., 231 Ill. 238, it was said that one who creates a trust has a right to create a method of filling vacancies and for appointing successors in trust. Rhode Island Hospital Trust Co. v. Copeland, 39 R. I. 193, involved a trust agreement substantially like that under consideration. There the shareholders had power to hold meetings, appoint trustees, amend the trust by a two-thirds vote and terminate the trust. It was held that the agreement created a valid trust and not a partnership. These and other cases which might be cited support the conclusion that the trust agreement in the instant case created a valid common law trust and not a partnership. The control of the trustees by the shareholders, referred to as creating a partnership, means control of the trustees in the management of the business of the organization and not the control of the personnel of the trustees without which no trust agreement could ever be made.

Some of the cases cited seem to emphasize the fact that none of the powers reserved to the beneficiaries in the trust agreement was exercised, and that is true in the instant case. In Wrightington on Unincorporated Associations and Business Trusts (2d Ed.) at page 68 the author says:

“The power to amend the declaration of trust has been emphasized as proving the existence of the power to control and, therefore, of partnership. If the instrument would otherwise be deemed to create a trust it cannot be that the mere power to change the instrument makes it, before such change, a partnership. The right to change a trust into a partnership presupposes that until that change it remains a trust. This common provision in the instruments we are considering would, therefore, seem to be of no value in determining their true classification.”

We do not believe it can be logically argued, where the trustees have exclusive and full control of every detail of a business, that merely the power under certain circumstances to fill vacancies among the trustees or to elect trustees at stated intervals, or even to alter or amend the trust agreement, turns the trust into a partnership, contrary to the intent of the parties.

An additional reason for sustaining the judgment of the trial court is found in paragraph 3 of the trust agreement, which provides as follows:

“Neither the trustees nor any beneficiary, herein referred to, shall be personally liable for any moneys so borrowed or for any other liabilities incurred . . . unless they shall have expressly undertaken to become so liable and all persons dealing in any manner with the trustees shall look only to the property of the trust, for the time being, for the payment of their claims.”

It will be remembered that the four trustees signing the notes which are the basis of this suit, signed “As trustees under an instrument dated at Chicago, Illinois, April 10, 1926, creating the South Water Market Improvement Association, and not individually.” In Bank of Topeka v. Eaton, 100 Fed. 8, affirmed 107 Fed. 1003, the note was signed, “as Trustee as Aforesaid.” It was held that such a note refers to the declaration of trust and the payee is bound by its provision that the trustee is not personally liable. In Bradner Smith & Co. v. Williams, 178 Ill. 420, it was held that an express provision showing that the parties agreed to act upon the responsibility of the funds alone relieved the trustee from personal liability. To the same effect is H. Kramer & Co. v. Cummings, 225 Ill. App. 26, in which the opinion quoted from Glenn v. Allison, 58 Md. 527, where it was held that where it plainly appeared from the face of the instrument that the trustee did not mean to bind himself personally there was no individual liability. This is applicable to the instant case.

For the reasons indicated we hold that the judgment of the trial court is proper, and it is affirmed.

Affirmed.

Matchett and O’Connor, JJ., concur.