source: Caselaw Access Project

author: Mr. Justice Jett

license: Public Domain

text:
    Hale Scott, Trustee of Charles Brantner, Bankrupt, Appellant, v. Leaf River State Bank and S. E. Sprecher, Trustee, Appellees.
    Gen. No. 7,650.
    1. Bankruptcy — sufficiency of evidence to show beneficiary of conveyance knowingly received preference from insolvent. Evidence in a suit by a trustee in bankruptcy to cancel a trust deed and notes secured thereby, made by the bankrupt within four months before he became insolvent, held to show that the bankrupt was insolvent at the time he made the conveyance, and that the beneficiary of the transaction had then reasonable cause to believe that the enforcement of the trust deed would enable it to receive a greater portion of the estate of the bankrupt than other creditors.
    2. Bankruptcy — when conveyance to creditor by bankrupt void as fraud upon other creditors. Where a creditor procures his debtor to convey to him all of his property, under circumstances such as to charge the creditor with knowledge that by making such conveyance the debtor rendered himself hopelessly insolvent and unable to pay other creditors, the transaction is void as a fraud upon such other creditors without regard to the motives of the parties in making such conveyance.
    3. Contracts — want of consideration for instruments■ in satisfaction of debt of another where debt neither released nor extended. Where a trust deed and notes secured thereby were executed by the father of a debtor upon the demand of the son’s creditors the transaction was void for want of consideration where it did not appear that the creditor, in consequence of the execution of such instruments, either extended the obligation of the debtor or released him therefrom.
    Appeal by plaintiff from the Circuit Court of Ogle county; the Hon. Harry Edwards, Judge, presiding. Heard in this court at the April term, 1926.
    Reversed and remanded with directions.
    Opinion filed October 6, 1926.
    Seyster & Fearer, H. A. Brooks and Leon A. Zick, for appellant.
    D. D. Madden, H. A. Smith and Welsh & Welsh, for appellees.
   Mr. Justice Jett

delivered the opinion of the court.

This is an appeal by Hale Scott, trustee in bankruptcy of Charles Brantner, bankrupt, appellant, from a decree entered by the circuit court of Ogle county dismissing his bill for want of equity in a suit instituted against the Leaf River State Bank, the Commercial State Bank of Forreston and S. E. Sprecher, trustee, to set aside and cancel and hold for naught a trust deed and twenty-four promissory notes secured thereby and for other relief.

For the purposes of this opinion, appellant will be called complainant and appellees, defendants.

The record discloses that on the 24th day of Sep-tember, 1924, Hale Scott, trustee of Charles Brantner, bankrupt, filed in the circuit court of Ogle county a bill against the Leaf River State Bank, the Commercial State Bank of Forreston and S. E. Sprecher, trustee, charging that on August 13, 1924, the said Charles Brantner was adjudged a voluntary bankrupt and that the said Hale Scott was appointed trustee and that he duly qualified as such and is the duly qualified and acting trustee in the estate of the said bankrupt.

It is further charged that at the time the said Charles Brantner was adjudged to be a bankrupt he was the owner of and seized in fee of 193 acres of land located in the Town of Lincoln in Ogle county, Illinois, and also all of a tract of land in the Town of Mount Morris in said county containing* 84 1/5 acres, said land and premises being more fully described in the bill of complaint; that the land situated in the Town of Lincoln was mortgaged for $10,000 and the premises situated in the Town of Mount Morris were mortgaged for $7,200, and that the combined lands and premises, including both tracts in said two towns, were incumbered by a third mortgage to secure $5,520, and it is alleged that said three mortgages are liens on said real estate of the said Charles Brantner. The complainant also states in his said bill that on April 18, 1924, there was filed for record in the recorder’s office of Ogle county, a trust deed executed by the said Charles Brantner and Della M. Brantner, his wife, to S. E. Sprecher, trustee, conveying the land in Lincoln township, consisting of 193 acres, and 80 acres of land in Mount Morris township in trust to secure the payment of twenty-four promissory notes dated April 17, 1924, due in one year, made by Charles Brantner payable to his order and indorsed by him, one for $4,740, one for $5,000, two for $1,650 each and twenty for $1,000 each; that at the time of making said trust deed, the said Charles Brantner made the notes described therein and that the Leaf Biver State Bank took $19,-040 of the notes and the Commercial State Bank of Forreston took $14,000 of said notes.

It is further averred in said bill of complaint that on and before April 17, the said banks fraudulently and falsely represented to Floyd and Linus Brantner, the sons of Charles Brantner, and to Charles Brantner and his wife, that the sons were indebted to the said two banks in large sums and that in creating such indebtedness and dealings with the banks, the sons had committed a felony and that unless Charles Brantner would secure the indebtedness of the sons, they would prosecute them for such alleged felonies, and that Charles Brantner and his wife, believing such representations, were alarmed thereby and for the purpose of avoiding criminal prosecution of the sons for such alleged felonies executed such trust deed and notes and that they were executed without any valuable consideration and procured by fraud and misrepresentation and void and that the sons were not guilty of any felony as represented by the banks. In said bill of complaint, the complainant further charges that at the time of the execution of said trust deed, the said Charles Brantner was insolvent and had a large number of creditors in addition to those whose debts were secured by mortgages on said real estate and that the only property Brantner had at that time was his equity of redemption in said real estate, and that the trust deed to Sprecher was executed by Brantner and received by Sprecher and the banks with intent to defraud, hinder and delay Brantner’s creditors and without any good and valuable consideration and that said Brantner was left without any property whereby to satisfy his creditors and that said conveyance was fraudulent and void as to his creditors and made under such circumstances as to necessarily hinder, delay and defraud his creditors. It is further charged in said bill that said Brantner was not then indebted to either of said banks in any sum and that the said banks and said Sprecher had reasonable cause to believe that the enforcement of said trust deed would effect a preference in their favor over and above the other creditors of said Brantner and that, therefore, the trust deed was void and voidable as creating a preference and should be set aside.

It is also charged in said bill of complaint that at the time of the making of said trust deed, the said Charles Brantner was indebted to divers persons in sums in excess of $50,000 and that claims have been filed in said bankruptcy proceedings in excess of $17,-000. The bill then concludes by praying that the said trust deed and notes secured thereby be set aside and canceled and for general relief.

To said bill of complaint the said Commercial State Bank of Forreston, one of the defendants, filed a disclaimer and in this said disclaimer the said bank among other things said: “This defendant admits, as stated in the said bill of complaint that the said Charles Brantner made, indorsed and delivered twenty-four promissory notes as described in the said instrument of writing mentioned in the bill of complaint and then delivered the said notes to the amount of $14,000 to this defendant, the Commercial State Bank of Forreston, Ogle County, Illinois.”

This defendant further answering says: “That on or about the 19th day of May, 1924, it delivered the said $14,000 of promissory notes' described in the bill of complaint to the defendant, Leaf River State Bank, of Leaf River, Ogle County, Illinois, and received from said bank, a release and receipt for the same and that it fully and absolutely disclaims all manner of right, title and interest whatsoever in and to the said $14,000 of promissory notes mentioned in said bill of complaint and in and to every part thereof,” and then follows the usual conclusion of disclaimer.

The Leaf River State Bank and Sprecher, trustee, answered the bill and admitted that the complainant was the duly qualified trustee of Brantner, the bankrupt, and that he had been adjudged a bankrupt and that at the time of filing the petition in bankruptcy he was seized in fee of the lands as alleged and that the lands were incumbered by the mortgages as set forth in said bill of complaint and that on the 18th day of April, 1924, the said trust deed was filed for record and that the notes were given as therein charged and that all bore interest at the rate of 7 per cent and due one year after date, and they assert that the said trust deed is a valid and subsisting lien on said real estate and deny that any of the notes are held by the Commercial State Bank of Forreston and aver that they were all held by the Leaf River State Bank. Said defendants deny that they ever fraudulently and falsely represented that either of the sons of Charles Brantner had been guilty of a felony or that they would prosecute them and deny that this was a reason for giving the notes and trust deed and deny that the notes and trust deed were given without any consideration or that they were procured by fraud. The defendants aver that on April 17,1924, Charles Brantner and Linus Brantner were indebted to the Leaf River State Bank in the sum of $4,618.76, and that Linus was then indebted to said bank in the sum of $28,300 on account of his overdrafts and had been due for some time, and that, in addition, he owed the bank $123 and that the total of said items owed to the Leaf River State Bank by Charles Brantner and his son, Linus Brantner, amounted to $33,941.76, and that the said Charles Brantner, a short time prior to April 17, learned of this large indebtedness of his son Linus and voluntarily, without being requested to do so, offered to pay it and to secure it, and that it was then arranged that a conference should be held at the home of the said Charles Brantner on the 17th of April, 1924, to adjust and settle such debts and that it was then agreed that if the Leaf Biver State Bank would extend the payment of said debts, Charles Brantner would execute notes to the amount of $33,040 and deliver a trust deed on the lands to secure the same, subject to the prior incumbrances, and that the note for $4,740 was to cover the notes owed by Charles Brantner and Linus Brantner, jointly, and the note of Linus for $123, and the balance to cover the $28,300 debt owed by Linus and that the giving of said trust deed and notes extinguished the debts of Charles Brantner and Linus Brantner to the banks.

It is further stated in said answer that at the time of making said trust deed, the said banks regarded Charles Brantner as a man of considerable means, property and wealth and that he stated he was worth $40,000 over and above his debts and that none of the officers of the bank knew of the existence of any indebtedness of the said Charles Brantner except the three said mortgages and the said debts to the Leaf Biver State Bank and that they believed he was solvent. Said defendants deny that they had sufficient cause to believe or know that the making of a trust deed would operate as a preference above the other creditors of the said Charles Brantner, and deny that said trust deed is void and voidable as creating a preference. Said defendants further state in their answer that they had no knowledge of the other debts of the said Charles Brantner until after the filing of the petition in bankruptcy; that they had no knowledge of the amount of the indebtedness; that the payment by Charles Brantner of the debts of his son Linus was consented to by Linus.

Replication was filed to the answer and the cause referred to the master and the proofs were taken and reported and filed in court and a hearing was had upon the evidence so taken.

It is the contention of the complainant that the trust deed and notes in controversy should be set aside, vacated and canceled for the following reasons: (1) Because the trust deed was made without any present fair consideration as required by the Bankruptcy Act; (2) that said trust deed was made by the bankrupt and received by the bank under such circumstances that a court of equity will conclusively deem it to be fraudulent as to' creditors; (3) that such transfer created a preference under the provisions of the bankrupt laws; (4) that it was given partly for an antecedent debt of the bankrupt and partly for an antecedent debt of the son, Linus Brantner, and the bankrupt received no benefit thereby and should be set aside as a preference.

It is the contention of the defendants (1) that the notes for $33,040 and the trust deed, securing the same, by Charles Brantner and wife, on April 17, 1924, did not constitute a preference under the provisions of the Bankruptcy Act; (2) that in the execution and delivery of the trust deed and notes there was no intent, either on the part of Charles Brantner, or on the part of the beneficiaries, under said trust deed, to disturb, delay, hinder or defraud creditors of Charles Brantner; (3) that the trust deed in question was not a voluntary conveyance. It was a transfer made for a good, valuable and legal consideration, and as a consequence was valid.

The evidence shows that in April, 1924, Charles Brantner resided on his farm of 193 acres in Lincoln township, Ogle county, with his wife and elder brother. His son Floyd lived in a separate residence on the same farm and his son Linus Brantner lived on a farm near the Village of Leaf River, about twelve miles distant. The sons had been engaged in farming and buying and selling live stock for a number of years. Floyd Brantner did his banking business at the Commercial State Bank of Forreston, and Linus Brantner did his banking with the Leaf River State Bank. The evidence further establishes that the sons, Floyd and Linus Brantner, had for more than a year indulged in the practice of kiting checks between the two banks above mentioned, which practice was approved if not encouraged by the banks. It appears that Floyd Brantner would deliver his check on the Forreston Bank to Linus Brantner and Linus would deliver a check for the same amount on the Leaf River Bank to Floyd, and each would take his check and deposit it in the bank in which he did business which would give them and each of them a false credit, and a seeming balance until such checks passed through the clearing house and were returned.

For some months before April, 1924, the sons, Floyd and Linus, had been using checks of the denomination of $7,500 and when the account of one was exhausted or overdrawn, the bank would request him to bring a check from his brother, and they finally adopted the habit of exchanging a number of checks for $7,500 and leaving them with their respective banks when their accounts were overdrawn. The clearing house of Chicago detected what was going on and refused to clear, and both of the sons were found to have overdrawn their accounts. The Leaf River Bank insisted that Linus should make good his overdraft, and Charles Brantner, the father, testified that the cashier of the Leaf River Bank told him that the sons had been guilty of an offense, by the kiting of checks, and that he became alarmed at the suggestion of his sons being guilty of a violation of the law.

The record discloses that Roy S. Mize was the cashier of the Leaf River State Bank and George C. Snyder was the cashier of the bank at Forreston. After the clearing house had refused to clear the checks, and prior to the 17th day of April, 1924, Mize suggested to Linus Brantner and his father, Charles Brantner, to go to other "banks and borrow money to pay the debt at his bank, and they did finally get a man by the name of Paul to sign a note to the' Leaf Biver Bank for $4,500, which was the only sum they were able to raise. It appears that the officers of the Leaf Biver Bank and Snyder of the Forreston Bank arranged to meet at Charles Brantner’s home on the evening of April 17, 1924. Brantner testified he was not informed of their coming and knew nothing about it until about seven o’clock in the evening, when Snyder and the officers of the Leaf Biver State Bank arrived at his home. The son, Floyd Brantner, was called in and it appears that they remained at Brantner’s home until about ten o’clock in the evening. On this evening in question, Charles Brantner and his wife executed notes to the amount of $33,040, and a trust deed to secure the same, to S. E. Sprecher, trustee, who was one of the directors of the Leaf Biver Bank, conveying the two farms owned by Charles Brantner, which was all the land and property owned by the said Brantner and his wife. The debt was evidenced by twenty-four promissory notes, due in one year with interest at 7 per cent, signed by Charles Brantner and his wife, payable to the order of Charles Brantner and indorsed by him. The said notes were for the amounts as hereinbefore stated and as charged in the bill of complaint. The land was then incumbered by three mortgages, one on the Lincoln farm for $10,000, dated November 3, 1923, one for $7,200 on the Mount Morris land, dated August 21,1923, and one for $5,520 covering both tracts of land, dated April 15, 1924, and the trust deed to Sprecher was expressly made subject to these incumbrances. It is the contention of the complainant that the notes and trust deed were made in accordance with the wishes and proposals of the officers of the Leaf River State Bank, and that the papers were executed as proposed, and drawn by the officers of said bank.

One of the reasons assigned by the complainant in support of his contention for a reversal of the decree is that the making of the trust deed and notes in question created a preference. In order to show that the execution of the trust deed created a preference it is necessary to prove that at the time the trust deed was executed the bankrupt was insolvent; that it was made within four months before bankruptcy; that the enforcement of it, that is of the trust deed, would enable the Leaf River State Bank, one of the defendants, to obtain a greater percentage of its debts than the other creditors, and that at the time of the transfer, or the recording of said trust deed, the bank had reasonable cause to believe that such a transfer would give it a preference. That Charles Brantner became a bankrupt within four months after the execution of the notes and trust deed in question is not controverted. That the said Charles Brantner by reason of the execution of the notes and trust deed became insolvent we think is clearly established by the evidence. The only property Charles Brantner had before the execution of the notes and trust deed was his equity in the lands conveyed and they were then subject to three mortgages aggregating, exclusive of interest, $22,720, which added to the amount secured by the trust deed made a total indebtedness of $55,760, exclusive of interest. The testimony also shows that Brantner, the bankrupt, had signed notes with his son Floyd which were existing indebtedness at the time of the execution of the trust deed in the aggregate of more than $20,000, and that he had signed notes with his son Linus which were also existing indebtedness at the time of the execution of the trust deed to the amount of $4,740, which is a part of the said indebtedness secured by the trust deed. The testimony further shows that the bankrupt also had signed obligations in which neither of his sons was a principal to the amount of $5,500. When we take into consideration the value of the equity of the bankrupt in the premises conveyed, together with the amount of indebtedness of the said bankrupt, he was insolvent by many thousands of dollars at the time of the execution of the trust deed and notes in question. The testimony also shows, in our opinion, that the defendant bank had reasonable cause to believe the enforcement of the trust deed would result in a preference, that is to say, would result in its receiving a greater proportion of the estate of the bankrupt than other creditors. The evidence further shows that the banks just prior to the time of the making of the trust deed suggested to the bankrupt to borrow money from other banks and that he told the officers of the banks that he had already borrowed to his limit. In support of this contention Charles Brantner among other things testified:

“I don’t remember whether there was anything said that night about what I owed. There had been before that time at the Leaf Biver Bank. Mize was there and Floyd and I, and he asked me whether I could not get the money to clean this up at different banks. I told him that I had borrowed all the money they would lend. Nothing was said on the subject that night. They asked about my debts and the mortgage that was on the land. Am not sure just now whether there was anything said that night. At the Forreston Bank they wanted us to borrow money at this bank and that, different banks. We told them we had borrowed all we could at the banks. Mr. Snyder was there then and Floyd was with me. I cannot give you the dates of these conversations. It was from the fore part of April up to that time. They were crowding us for the money right along. I told them how much I had borrowed and gave them the correct amount: $5,520.00 from the Forreston State Bank, * * * $2,000.00 from the Oregon State Savings Bank. There was something said to both of these banks about sale notes in these conversations that I signed with both the boys ’ sale notes. They knew that.”

On the same subject Floyd Brantner testified:

“When father and I went to the Forreston Bank, Mr. Snyder wanted to know if we couldn’t borrow some money from other banks and he mentioned some other banks. Father said we had sale notes at the Polo Bank and he said we had $2,500.00 borrowed from the Exchange Bank. He said he didn’t think we could get any more there. We said we would try to get it if we could, and we had a conversation with the officers of the Leaf River Bank concerning the same subject, and told them the same thing. That was in the fore part of April, along the 8th or the 10th, something like that.”

The testimony of Linus Brantner was as follows:

“Shortly before the settlement, father and he and I were in the basement of the Bank. Mize wanted us to go down there so no one would hear what we said. The main topic there was where to get the money to settle it. Mr. Mize wanted me to borrow more money with my father as security. He mentioned Charles Riley and Mr. Cooper. Mize suggested that I was to try to get them to go on my notes and get the money at the Byron Bank, and I said there were too many notes with father’s name on as security already. The banks wouldn’t take any more.”

The testimony of Charles Brantner and his two sons is, so far as this record discloses, not contradicted and establishes the fact that Mize and Snyder, cashiers of the respective banks, prior to the time of the execution of the trust deed and notes, knew that Charles Brantner had by borrowing money exhausted his credit and had no credit at other banks and had signed sale notes with his sons to such an extent that he was unable to raise any more money.

. Collier on Bankruptcy (1925 Ed.), p. 1299, announces the following rule:

“Reasonable cause to believe that a transfer will effect a preference does not require proof, either of actual knowledge or actual belief, but only such surrounding circumstances as would lead an ordinarily prudent business man to conclude that the transfer will result in a preference. Notice of' facts which will incite a person of reasonable prudence to an inquiry under similar circumstances is notice of all the facts which a reasonably diligent inquiry would develop. If a creditor accepts a transfer under circumstances which would lead a man of ordinary prudence and sagacity to believe he was being preferred over other creditors of the same class, without making investigation, he would be charged with the knowledge which he would have acquired had he performed his duty in this regard. It is to be remembered, however, that the same circumstances which to some minds would merely give grounds of suspicion may afford evidence which to other minds would carry conviction that they not only showed reasonable cause to believe, but actually had created a belief. Where the duty of inquiry as to a debtor’s solvency is imposed on a creditor, it is not met by inquiry alone of the debtor, whose answer, in the circumstances in the case, could readily be found to have been untrue.”

Black on Bankruptcy, 599, states the rule as follows: such ultimate knowledge would have given him a reasonable cause to believe that the transaction would result in giving him a preference, then he cannot safely accept the payment or transfer and the transaction will be voidable if the creditor becomes a bankrupt in four months.”

“When a creditor about to receive payment on security from his debtor has knowledge or notice of facts which would incite a man of ordinary prudence and business intelligence to inquire as to debtor’s solvency and the probable effect of the transaction as a preference, he is bound to prosecute a reasonably diligent inquiry to ascertain the truth, and, if he fails to do so, he is chargeable with knowledge of the facts which such an inquiry would have disclosed; and if

When the circumstances are such as to incite a man of ordinary prudence to inquire, the creditor is chargeable with notice of all facts which a reasonably diligent inquiry would have disclosed; inquiry of the debtor alone is not sufficient. Schulette & Co. v. Schwank, 45 Amer. Bankr. Rep. 373.

The defendants insist that the conveyance cannot be set aside as a preference as to the indebtedness of the bankrupt’s sons secured by the trust deed, because this was not a pre-existing indebtedness of Charles Brantner.

The Bankrupt Act as amended in 1910 reads as follows: “If a bankrupt shall have procured or suffered a judgment to be entered against him in favor of any person or have made a transfer of any of his property, and if, at the time of the transfer, or of the entry of the judgment, or of the recording or registering of the transfer if by law recording or registering thereof is required, and being within four months before the filing of the petition in bankruptcy or after the filing thereof and before the adjudication, the bankrupt be insolvent and the judgment or transfer then operate as a preference, and the person receiving it or to be benefited thereby, or his agent acting therein, shall then have reasonable cause to believe that the enforcement of such judgment or transfer would effect a preference, it shall be voidable by the trustee and he may recover the property or its value from such person.”

When a debt is contracted a creditor is necessarily created and the Bankruptcy Act does not provide that such creditor must be a pre-existing creditor.

It has been held that all transfers coming within the provisions of the act are not preferences, but only-such as diminish the estate; that a transfer of property of no or little value will not be set aside, nor will transfer of exempt property, because creditors would have no rights in such property.

“As a corollary to the proposition that only transfers which diminish the estate of the bankrupt are preferences, it may be stated that preferences arise only in the case of antecedent debts.” Collier on Bankruptcy, 803.

The debts secured by the trust deed were antecedent debts but were largely the antecedent debts of the son of the bankrupt. The defendants assert that if the bank had taken a trust deed to secure the bankrupt’s debt that it might be set aside, but if it took it to secure the debt of his son the trust deed could not be set aside even though it entirely impoverished the bankrupt’s estate. To our minds such contention is not equitable, and does not find support in the Bankruptcy Act.

There is nothing in this record to indicate that the said bankers were less astute than the ordinary business man. They were possessed of the information prior to the time of the execution of the notes and trust deed that Charles Brantner was greatly in debt. They were informed that he had borrowed all the money he was able to get at other banks. It had been suggested by them that he borrow from other banks and pay the indebtedness of the banks that were instrumental in securing the execution of the notes and trust deed. They were appraised of his financial condition and in view of the rule hereinbefore announced they are charged with knowledge that the transaction would result in giving them a preference. We are of the opinion that the defendants not only had reasonable cause to believe that the enforcement of the trust deed would effect a preference, but that they had actual knowledge of the fact that its enforcement would create a preference.

It is also contended by the complainant that the trust deed was fraudulent and void as to the creditors of the bankrupt and therefore should be set aside at the instance of his trustee. The defendants quote paragraph 4 of chapter 59 of Cahill’s Revised Statutes in reference to fraudulent conveyances and say that such conveyances in order to be fraudulent must be “made with the intent to disturb, delay, hinder and defraud creditors or other persons,” and insist that this was not the intent in the present case.

It has been held that it is not necessary to make actual proof of such fraudulent intent and that there are two separate and distinct grounds under which such conveyances may be set aside: First, such as are entered into with a fraudulent intent; and second, such as from the nature of the transaction itself are deemed fraudulent as a mere inference of law without regard to the motives or actual intention of the contracting parties. Lawson v. Funk, 108 Ill. 502; Nelson & Co. v. Leiter, 190 Ill. 414; Haas v. Sternbach, 156 Ill. 44; R. C. L., vol. 12, p. 537.

The Bankrupt Law applicable in this cause is different from the statute relied upon by the defendants. The Bankrupt Act provides: “That all such conveyances, transfers, assignments or encumbrances of his (the bankrupt’s) property or any part thereof, made or given by a person adjudged a bankrupt, under the provisions of this act subsequent to the passage of this act and within four months prior to the filing of the petition with the intent and purpose on his part to hinder, delay and defraud his creditors or any of them, shall be null and void as against creditors of such debtor, except as to purchasers in good faith and for a present fair consideration.” It will be seen that under the bankruptcy statute there must have been a “present fair consideration” to sustain a conveyanee. It follows that Charles Brantner, the bankrupt, knew at the time of the making of the trust deed and notes that in addition to the three mortgages then on his land aggregating $22,720 he was indebted to divers persons, without counting the indebtedness secured by the trust deed in question, in the sum of more than $30,000, and that when he made the trust deed to secure the $33,040 his total indebtedness exceeded $80,000, and that all of the property he had of every kind was not worth within $25,000 or $30,000 of that amount. In other words, he knew that by the making of the trust deed and the notes in question he rendered himself hopelessly insolvent.

In Collier on Bankruptcy (9th Ed.), p. 956, it is said:

“f. Purchasers in good faith and for present fair consideration. — This saves valid transfers, as subsection d does valid liens. A purchaser is not in good faith who makes no effort to determine whether an insolvent may make a transfer which will not be in violation of the act; nor is he in good faith if he has knowledge of the insolvent’s insolvency, or where facts are shown which place upon the purchaser the duty of making inquiries as to the insolvent’s financial condition, and he fails to make them, as where the sale consists of the transfer of the entire stock of merchandise owned by a retail merchant. A payment of a note dated prior to the four months’ period, which is immediately followed by bankruptcy, is not in good faith and for a present fair consideration. The fact that a mortgagee knew that the proceeds of a mortgage was to be used in the payment of the mortgagor’s creditors does not affect the good faith of the transaction, in the absence of proof that he had cause to believe that the mortgagor was insolvent. If the consideration is fair and passes to the bankrupt and goes into his estate, the transfer is valid, unless there is clear and convincing proof of fraud.”

No other conclusion can be reached but that the parties to this trust deed knew or had reason to believe that the execution of the notes and trust deed made the bankrupt insolvent and was therefore a fraud upon his unsecured creditors.

We cannot give weight to the contention of the defendants that the bank had no knowledge or reason to believe that it was getting a preference over other creditors in this transfer or that it would work a fraud on other creditors. In passing upon this branch of the case it is necessary to keep in mind that Mize and Snyder, cashiers of the respective banks, went to the bankrupt’s home on the evening of the 17th of April and obtained the trust deed; that a few days before they had urged the bankrupt to go to other banks to borrow money to pay them and they were told in substance that he had already signed sale notes and borrowed money from the banks to his limit. They knew that when they went to the home of Brantner that he had borrowed from other banks all that he could; they knew the extent of the holdings of Charles Brantner; they knew of his indebtedness, including his indebtedness to them, and in view of what the record discloses they knew of the financial condition of Charles Brantner, and in possession of this information they secured the trust deed and by so doing made Brantner a bankrupt and absolutely insolvent.

All that the complainant was required to show was that when the defendants received the trust deed they had knowledge and notice of the facts which would incite a man of ordinary and business intelligence to inquire as to the debtor’s insolvency and the probable effect of the transaction as a preference and if they had that knowledge and they failed to make an inquiry, they are chargeable with knowledge of the fact which such inquiry would have disclosed.

It seems to us that when a debtor parts with all of his property and under such circumstances as is disclosed in this record, whereby it is inevitable that he will prevent his unsecured creditors from getting anything, that the courts will say as an inference of law, without regard to the motives or intentions of the bankrupt, that the transaction is fraudulent. We are of the opinion that the transaction in question was fraudulent and void without regard to the motives or actual intent of the contracting parties.

At the expense of extending this opinion we desire to further allude to the question of consideration. As we understand the contention of the defendants they do not claim that the bankrupt got any benefit or consideration for the conveyance but do insist that it either extended the time of payment of the debt or released Linus Brantner from the debt or both, and that therefore in law that is sufficient consideration to sustain it, or, in other words, what took place constituted a present fair consideration. The evidence does not show that Linus Brantner was released from the obligation of his indebtedness or that his indebtedness was extended as to him, but it does establish that it was the understanding that he was not to be released from the indebtedness and that it was not extended as to him. We fail to find in the record any agreement to extend any of the obligations. Linus Brantner, who owed them, was not at the meeting and knew nothing of the meeting for several days after-wards. There was no request from the son, Linus Brantner, that his indebtedness be extended and he testified that after the trust deed was made he paid to the bank to apply on his debt about $900. Furthermore, the witness Mize, cashier of the defendant bank, testified that on April 17, in a talk with. Charles Brantner, before going to the home of Brantner, he asked how he was going to take care of this debt and he said the boys should take care of all they could and if they did not or could not take care of it all he would take care of the balance. In other words, it was still the debt of Linus and he was not released from the obligation and Charles was to pay what Linus failed to pay. . The evidence does not show that Linus Brantner knew that it was intended his father should mortgage his property or that the trust deed had been executed until several days afterwards. The evidence does show that a number of days after the execution of the trust deed Mize, representing the Leaf River State Bank, and Snyder, cashier of the Forreston Bank, went to Linus and wanted him to meet them in Rockford and turn over his property by a bill of sale against his overdrafts. Linus wanted to give a chattel mortgage but after he learned of the trust deed he refused to do it. The evidence also shows that on May 7, following the giving of the trust deed, the Leaf River State Bank wrote to Linus requesting payment of a part of his indebtedness covered by the trust deed. The bank never surrendered the notes as subsisting valid obligations against Linus until the close of the hearing in the case. The defendants insist that Linus Brantner ratified the alleged extension because he refused to make a bill of sale or mortgage his personal property after he learned of the execution of the trust deed. We fail to see how the refusal of Linus Brantner to execute a mortgage or make a bill of sale could amount to a ratification as is insisted by the defendants. If it was not agreed that Linus Brantner was to be released, or the debt was to be extended as to him, there was nothing to ratify. Moreover, where a debt is incurred and after the incurring of the same a third party promises to pay or guarantee it, some additional consideration is necessary to support such promise. Anderson v. Norvill, 10 Ill. App. 240; Cassell v. Morrison, 8 Ill. App. 175; Haven v. Chicago Sash, Door & Blind Co., 96 Ill. App. 92-101.

In Edgerton v. Weaver, 105 Ill. 43, and Hahn v. Maxwell, 33 Ill. App. 261, it is held that when one person promises to pay the debt of another without any understanding' on agreement for forbearance by the creditor, against the original debtor, there is no consideration for the agreement.

We have examined the authorities cited by the complainant and the defendants upon the various questions raised and discussed. We do not feel like extending this opinion in reviewing the cases.

Eegardless of* all other questions presented and argued, we are of the opinion that the decree should be reversed and the cause remanded with directions to the circuit court of Ogle county, because the making of the trust deed and notes in question created a preference under the Bankrupt Law, and the said conveyance was fraudulent as to the unsecured creditors of the bankrupt, which is accordingly done and the court is directed to vacate the decree, dismissing the bill, and to enter one granting the relief prayed by the complainant in his bill of complaint.

Reversed and remanded with directions.


author: Mr. Presiding Justice Taylor Mr. Justice Thomson

text:
    John Filas, Defendant in Error, v. Emily F. Filas, Impleaded with Thomas M. Filas, Plaintiff in Error.
    Gen. No. 30,811.
    1. Negotiable instbuments — sufficiency of evidence to show agreement substituting new consideration for instrument. A finding of the jury, in an action upon a note given by husband and wife in consideration of advance payments made by the payee upon the contract of the husband to erect a building for such payee, that after the making of the note the payee thereof paid the husband in cash the amounts specified in the contract, as they became due, and in addition a sum equal to the face of the note as a special loan, upon the agreement of the husband that the note aforesaid should stand as evidence therefor, held not so manifestly against the weight of the evidence as to require reversal.

      2, Payment — whew wofe deemed paid as to one of joint malcers not party to agreement substituting new consideration for instrument. Where the payee of a note given by husband and wife in consideration of advance payments made by the payee upon the contract of the husband to erect a building for such payee, without the knowledge or consent of the wife paid to the husband in cash the amounts specified in the contract as they became due, and in addition a sum equal to the face of the note under the agreement of the husband that the note aforesaid should stand as evidence thereof, such note was paid and the debt thereby represented was liquidated, as to the wife, upon the coming due of the payments on the contract so advanced.
    Thomson, J., specially concurring.
    Error by defendant to the Circuit Court of Cook county; the Hon. William V. Brothers, Judge, presiding. Heard in the third division'of this court for the first district at the March term, 1926.
    Reversed.
    Opinion filed November 17, 1926.
    Rehearing denied December 2, 1926.
    Robert W. Dunn, for plaintiff in error.
    Jones & Keener, for defendant in error; James GL Skinner, of counsel.
   Mr. Presiding Justice Taylor

delivered the opinion of the court.

On February 20, 1922, John Filas, the plaintiff, obtained judgment by confession, in the circuit court, against the defendants, Thomas M. Filas and Emily F. Filas, in the sum of $3,538.40. On April 13, 1922, pursuant to a stipulation, the defendants were given leave to plead and file an affidavit of merits within 15 days, the judgment meanwhile to stand as security.

On April 28, 1922, the defendants pleaded the general issue and payment, and the defendant, Emily F. Filas, filed a further plea, in which she alleged that no consideration passed from the plaintiff to her for the note sued upon, and “that she did not sign said note as surety or guarantor.”

There was a trial before.the court, with a jury, and, on March 27, 1924, a verdict finding the issues for the plaintiff. A motion by the defendants, for a new trial, was granted. The cause was again tried before the court, with a jury, and on December 6,1924, there was a verdict for the plaintiff. On December 13, 1924, it was ordered that the former judgment of February 20, 1922, in the sum of $3,538.40, in favor of the plaintiff, and against both the defendants, stand as the final judgment in the cause. This is a writ of error prosecuted by the defendant, Emily F. Filas, to reverse that judgment.

It is the theory of the plaintiff that on June 3,1915, the Thomas M. Filas Company, by Thomas M. Filas, president — Thomas M. Filas being the nephew of the plaintiff, and one of the defendants — agreed to put up a brick building for him, the plaintiff, for $5,600; that the contract provided that $1,200 was to be paid when the subfloor was laid; $1,200 when the roof was on; $1,200 when the plastering was completed; $1,200 when the building was completed, and $800 thirty days after completion; that he, the plaintiff, paid $1,200 on July 1; that on July 7 he loaned, or paid in advance, the sum of $2,400, anticipatory of the next two payments, the second and third, and took from Thomas M. Filas a 60-day note for that amount, signed both by his nephew and his nephew’s wife, the defendant; that on July 28, his nephew called at his house and asked him, to use the language of plaintiff’s testimony, if he, the plaintiff, “wouldn’t be kind enough and pay-him for the second and third payment in cash, and keep the $2,400 note until further along, that he (his nephew) would square that up later on”; that he, the plaintiff, said, “All right, I will pay you — give you money for the second payment, that was $1,200, and the other $1,200”; that he then gave him $1,200 in cash and later, on August 2, gave him the other $1,200 in cash; that “He (his nephew) didn’t give me anything, because he thought the note was all right for the other twenty-four hundred”,; that his nephew said, “I didn’t have to have no receipt, that I can keep the $2,400 note”; that, on September 10, he, the plaintiff, gave his nephew a check for a further $1,200, and on October 29, a check for $850, making in all $8,050, and that there is now still due him, the plaintiff, the $2,400 and interest, represented by the $2,400 note of July 7.

It is the theory of the defendant, Emily F. Filas: (1) That the plaintiff never made the alleged two payments of $1,200 each in cash, on July 28 and August 2, and (2) that even if he did make these two payments, as the note of $2,400 was originally given by her and her husband, as evidence of the $2,400, which was loaned or paid in advance by the plaintiff on July 7, and as it was later agreed between the plaintiff and her husband, without her knowledge and consent, that the same note — which is the one now sued upon— should be used to represent a new debt, that is the alleged two payments of cash, on July 28 and August 2, it follows that, as to her, the debt for which the note was originally given — being the second and third payments, which payments were compensated for by the finishing of the work on the building — has been paid and the debt it originally represented satisfied in full.

As to the alleged two payments of July 28 and August 2, of $1,200 each. The evidence on that subject consists, chiefly, of the testimony of the plaintiff and his nephew, Thomas M. Filas. The evidence shows, without question, that the defendant paid $1,200 on July 1, $2,400 on July 7, for which he took the note in question, $1,200 on September 10, and, on October 29, at thq time of the final settlement, $850, making a total of $5,650, the total contract price, together with certain minor items. It is the claim, however, of the plaintiff that he paid $1,200 in cash on July 28, and the same amount on August 2. The defendant, Thomas M. Filas, denies that he ever received those payments. The evidence on that subject is conflicting and irreconcilable, but as the jury found in favor of the plaintiff, we do not feel justified in holding that their finding as to those payments was clearly against the weight of the evidence.

In the view we take of the case, the plaintiff was not entitled to judgment against the defendant, Emily F. Filas, even assuming the plaintiff made the two payments in question. The $2,400 note on which suit was brought is dated July 6, 1915, and was signed by Thomas M. Filas and Emily F. Filas, his wife, as makers, and was payable 60 days after date to the order of the plaintiff. The defendant Emily F. Filas testified that she signed the note at the request of her husband; that she knew what the note was given for at the time, and that she never at any time had any conversation with the plaintiff in regard to the note.

It is the testimony of the plaintiff that on July 1, 1915, after he had given Thomas M. Filas a check for $1,200, which was the first payment, his nephew asked him how much money he had in the bank, and he told his nephew it was somewhere around $2,400; that his nephew asked him if he would do him a favor and let him have that $2,400, as he could buy the lumber cheaper if he could pay cash for it, and that he could, also, get rebates; that he, the plaintiff, said, “All right if that is the case I will help you out with that money, but that will have to be figured on the payments of the contract,” that is for the second and third payments; that he would require-a note for $2,400; that on July 7, his nephew stopped at his, the plaintiff’s house, and they went to the bank, and he paid his nephew $2,400, and got the note in question.

The plaintiff further testified that he next saw his nephew on July 28, at his, the plaintiff’s house; that his nephew asked him “if I wouldn’t be kind enough and pay him for the second and third payment in cash, and keep the $2,400 note until further along, that he would square that up later on”; that he told his nephew that he had enough money already in advance, and his nephew said, “That will be all right, we will catch up to everything”; that he, the plaintiff, said, “That will be all right, I will pay you — give you money for the second payment, that was $1,200, and the other $1,200. Ton come around some other day and get the other $1,200”; that he then gave his nephew $1,200 in cash. When asked to tell what his nephew said, he answered, “He said I didn’t have to have no receipt, that I can keep that $2,400 note.”

The plaintiff further testified that on August 2, at his own home, his nephew called for the other $1,200; that he told him he had it ready for him; that he went into the room where he had a tool box and took the money out of it, and paid him $1,200 in currency. That evidence — the testimony of the plaintiff — shows conclusively that although the note was originally given for an advance payment, on the contract, of $2,400, it was agreed, on July 28, between the plaintiff and Thomas M. Filas, that the second and third payments of $1,200 each, for which the plaintiff had been given the $2,400 note, should be considered as payments on the contract in cash, and that the note thereafter should be used and substituted as evidence of a special loan of $2,400, which was made up of the alleged payments of $1,200 on July 28, and $1,200 on August 2.

From the foregoing, it follows, as the building was ultimately finished and completely paid for, that the note which the defendant, Emily F. Filas, signed as joint maker and which was given by her only as evidence of the advancement of the second and third payments, and which was made on July 7, must be considered as having been paid and satisfied in full, as to her. The claim of the plaintiff that his nephew asked him to lend him $2,400, and hold the old note, which was given for another purpose, as evidence of the new debt, and that he acquiesced, demonstrates that the plaintiff has no right of action against the defendant, unless he has shown that she, by some overt act, had in some way consented to the new use of the note. Although he was bound to prove that fact by a preponderance of the evidence, all that the record shows on that subject is the testimony of the defendant herself, who testified that she signed the note in question with her husband; knew what the note was given for, and never at any time had any conversation with the plaintiff in regard to the note after the day it was signed. If the testimony of the plaintiff is true that he paid to his nephew, in all, $8,050, which was the price of the building, and $2,400 in cash in addition, then his nephew may still owe him the amount of the note, but as far as Emily F. Filas is concerned, the debt represented by the note was liquidated and paid when the work on the house under the contract was so far done that by the terms of the contract the second and third payments became due. As it is shown by the testimony of the plaintiff himself that he and the defendant undertook to reissue the note, as it were, as evidence of another debt, without consulting or considering the defendant, Emily F. Filas, and as the original debt has. been paid, there can be no liability on the defendant. The defendant pleaded payment, and the evidence of the plaintiff proves it.

As there was no liability on the part of the defendant, Emily F. Filas, the judgment is reversed.

Reversed.

O’Connor, J., concurs.

Mr. Justice Thomson

specially concurring: While I agree that the judgment of the circuit court should be reversed, I am of the opinion that the cause should be remanded to that court for such further proceedings as the plaintiff may wish to take against the defendant Thomas M. Filas, as was done under a case presenting somewhat similar circumstances in Seymour v. O. S. Richardson Fueling Co., 205 Ill. 77.


author: Mr. Presiding Justice Taylor

text:
    United Masonic Temple Corporation, Appellee, v. Mandel H. Harris, Appellant.
    Gen. No. 31,056.
    1. Words and phrases — debenture defined. A debenture is a writing either creating or acknowledging a debt.
    2. Contracts — validity of subscription to “participating debentures” in aid of corporate building project. A subscription to two “participating debentures” of a corporation in aid of its purpose to erect and equip a building, and made in consideration of the subscriptions of others for the same purpose and of the undertaking of the corporation to make certain provisions for the payment of interest on such debentures and for the ultimate repayment of the principal, held a binding bilateral contract, not unenforcible for uncertainty or because failing to specify what proportion of the whole of such debentures the subscriber obligated himself to take.
    3. Contracts — proof required to establish nonliability upon subscription to debentures in aid of corporate building project. Where a subscription in aid of the purpose of a corporation to erect a building was conditioned upon the securing of sufficient subscriptions “to enable the construction of the building,” and it was further agreed that if the necessary subscriptions were not obtained all payments made thereon would be returned less a pro rata share of the cost of the undertaking, the subscriber could not escape liability on the ground that sufficient subscriptions were not obtained without proof that the subscriptions obtained were insufficient and that the expense of the undertaking did not exceed the amount of his subscription.
    Appeal by defendant from the Municipal Court of Chicago; the Hon. Asa G. Adams, Judge, presiding. Heard in the third division of this court for the first district at the March term, 1926.
    Affirmed.
    Opinion filed November 17, 1926.
    Nathan Shefner, for appellant.
    John L. Fogle, for appellee.
   Mr. Presiding Justice Taylor

delivered the opinion of the court.

On November 9, 1925, the plaintiff, United Masonic Temple Corporation, brought suit in the municipal court, against the defendant, Mandel H. Harris, on a subscription for two participating debentures, and obtained a judgment in the sum of $200. This appeal is therefrom.

The statement of claim recites that it is for moneys due and owing from the defendant to the plaintiff under and by virtue of an agreement in writing, executed by the defendant on February 21, 1924, and delivered to the plaintiff, whereby the defendant agreed to pay to the plaintiff the sum of $200. On November 30, 1925, the defendant filed his appearance and made a written demand for a trial by jury. On January 5, 1926, there was a trial before the court, with a jury, and at the close of all the evidence, the court instructed the jury to find the issues against the defendant, and assessed the plaintiff’s damages at the sum of $200. A verdict was rendered accordingly, and judgment entered on the verdict.

The evidence shows that the defendant, on or about February 21, 1924, subscribed a document containing, in part, the following language: “For the purpose of financing, erecting, furnishing and equipping a new Masonic temple in Chicago in the downtown district, and in consideration of the subscriptions of others; I hereby subscribe for 2 participating debentures of the United Masonic Temple Corporation of Chicago, Illinois, in the aggregate sum of two hundred dollars, and will pay for the same” in five equal instalments, the last payable on February 15, 1925.

The document subscribed contained, also, the following :

“It is understood and agreed, that it is a condition of this subscription, that after the payment of all fixed and prior charges, including ground rent, taxes, insurance, maintenance, etc., from the net earnings of the corporation a reasonable sum (not less than one per cent (1%) of the amount of the debentures issued) shall be annually set aside as a sinking fund to retire said debentures, and the balance of the earnings of the corporation shall be annually distributed pro-rata as interest on said debentures. Interest at the rate of five per cent (5%) per annum, will be paid from the time each subscription is fully paid until the temple is ready for occupancy, and thereafter it is estimated that this interest will be five per cent (5%) per annum during the first few years of operation, and that after the retirement of a substantial portion of these debentures the rate of interest can and will be increased to six or seven per cent (6% or 7.%) per annum.
“It is further understood and agreed, and it is a condition and consideration of this subscription, that upon the retirement of all indebtedness of the corporation, all the leases and property of the corporation shall be tendered to the Grand Lodge, A. F. & A. M. of the State of Illinois as its absolute property.
“It is further agreed that if sufficient subscriptions be not obtained to enable the construction of the building, all payments made on this subscription shall be returned less the pro-rata share of the expense of con- ' ducting the undertaking, said expense to be pro-rated over all subscriptions obtained.”

The defendant admits that he signed the subscription, but contends (1) that the phrase “participating debentures” is meaningless and not definable by law, (2) that the document he subscribed is too indefinite, vague and uncertain to be enforcible, and (3) that he was not liable thereon, because the plaintiff failed to secure sufficient subscriptions “to enable the construction of the building in question.”

(1) We do not think that the words, “I hereby subscribe for 2 participating debentures of the United Masonic Temple Corporation of Chicago, Illinois, in the aggregate sum of $200.00” are meaningless, or even uncertain. The word “debenture” is said “to signify a debt; an acknowledgment of a debt, in the nature of a bond or bill, etc.; a writing acknowledging a debt; a document which either creates a debt or acknowledges it; an instrument which shows that the party owes and is bound to pay; an instrument, generally under seal, for the repayment of money lent, usually if not exclusively used of obligations of corporations or large moneyed copartnerships, issued in a form convenient to be bought and sold as investments ; an instrument importing an obligation or covenant to pay, in most cases at the present day accompanied by some charge or security, * * * an agreement by which a right in equity to a charge or security on personal chattels is conferred; an instrument in the nature of a mortgage, to secure a certain sum of money, with interest, to which coupons are attached, making the interest payable half yearly.” 17 C. J. 1369. In the latter reference, it is said: “A debenture may be, and perhaps generally is, under the corporate seal, in which case it is called ‘a debenture bond.’ But an instrument need not be under seal to be a debenture; it may be a simple acknowledgment or promise to pay, like a promissory note.” Jones, in his work on Corporate Bonds and Mortgages, section 32, says:

“Debentures, strictly so called, differ from mortgages in not conferring upon the grantees the legal title, or any of the ordinary rights of ownership of the property upon which a charge is created. They are at most only equitable mortgages. The charge they create upon the property of the company confers only equitable rights, either as against other creditors or as against the corporation; and in fact the true test whether an instrument is a debenture or mortgage is found in the inquiry whether the holder has any legal right to interfere with the company’s use or control of the property in whatever way it pleases. If the instrument confers a charge which can be protected and enforced only in equity, it is strictly a debenture. ’ ’

In Edmonds v. Blaina Furnaces Co., 36 Ch. D. 215, the court said: “And speaking of the numerous and various forms of instruments which have been called debentures without anyone being able to say the term is incorrectly used, I find that generally, if not always, the instrument imports an obligation or covenant to pay.”

Bearing in mind the foregoing definitions, when the defendant made this subscription for “2 participating debentures of the United Masonic Temple Corporation of Chicago, Illinois, in the aggregate sum of $200.00,” it must be presumed that he knew he would receive from the plaintiff certain documents showing that the corporation owed him $200, and that, after certain expenses of the corporation had been paid, if there was any money left, in the nature of a sinking fund, or otherwise, he would receive back the principal of $200, and meanwhile, interest at the rate of 5 per cent per. annum; in other words, if the United Masonic Temple Corporation, in financing and erecting a new Masonic Temple became a successful going concern, he would ultimately be paid his principal, together with interest. There is no evidence that the phrase participating debentures was used as a ruse or as mysterious, fraudulent, high-sounding propaganda. The subscription document signed by the defendant is, taken altogether, quite simple and explicit, and easily understood.

(2) and (3). It is urged that as the subscription does not specify what proportion of the whole of the stock, or of bonds, or of debentures, the defendant was to take, his subscription is void. That is not tenable. The evidence shows that the corporation was already organized, and that the subscription of the defendant was for a definite amount to be paid in accordance with the terms of the written subscription. The evidence shows that actual building operations began in October, 1924; that altogether there were approximately 15,000 subscriptions taken in; that the total amount subscribed in round figures was $2,247,000, and that about $1,700,000 has been paid in. The evidence, also, shows that at the time of the trial the building was in course of construction, the exterior being entirely done.

The defendant was to receive for this promise and payment two participating debentures as evidence of the obligation of the corporation. That made a binding bilateral contract; that is, there was a promise to pay on the part of the defendant, and a promise on the part of the corporation to deliver to him, upon payment, two participating debentures, as evidence of an assumed liability on the part of the corporation.

As to the contention that the defendant was not liable because the plaintiff failed to secure sufficient subscriptions “to enable the construction of the building” in question, we think it is sufficient answer to say that there is no evidence that sufficient subscriptions were not obtained “to enable the construction of the building”; and, further, as the contract of subscription provides as follows: “It is further agreed that if sufficient subscriptions be not obtained to enable the construction of the building, all payments made on this subscription shall be returned less the prorata share of the expense of conducting the undertaking, said expense to be pro-rated over all subscriptions,” there is not only no evidence to show that sufficient subscriptions were not obtained, but no evidence to show that the pro-rated share of the expense of conducting the undertaking did not require the whole of the defendant’s subscription.

We think it is quite obvious, therefore, that the defendant, when he subscribed, willingly and knowingly bound himself, for a good consideration, to pay $200 to the plaintiff.

For the reasons stated, the judgment will be affirmed.

Affirmed.

O’Connor and Thomson, JJ., concur.


author: Mr. Justice O’Connor

text:
    Christ Kapalos et al., Appellees, v. John Ganas et al., Appellants.
    Gen. No. 30,938.
    1. Chattel mortgages — insecurity of mortgagee as ground for refusing to set aside foreclosure procured by fraud upon mortgagor. Where the holder of a chattel mortgage, by fraudulent representations, procured the consent of the mortgagors to a pretended foreclosure and sale, thereby divesting them of their title, a decree relieving the mortgagors from the foreclosure was proper, notwithstanding the mortgagee had sufficient cause to deem himself insecure.
    2. Equity — right to relief where culpability of complainant not equal to< that of defendant. A court of equity will set aside a pretended foreclosure of a chattel mortgage, at the suit of the mortgagors, where their consent thereto was procured by false representations that the transaction was a friendly one for the purpose of protecting the parties from interference by third party creditors, notwithstanding the mortgagors participated in the fraudulent purpose to the extent of agreeing thereto at the solicitation of the mortgagee, their culpability being less than that of the mortgagee.
    3. Chattel mortgages — when foreclosure properly set aside •without decreeing relief to mortgagee. Evidence in a suit to set aside the foreclosure of a chattel mortgage upon the ground of fraud held not to show error in refusing to decree payment to the mortgagee of the amount found due under the mortgage.
    4. Chattel mortgages — construction of decree setting aside foreclosure. Decree setting aside foreclosure of chattel mortgage held not to have divested the mortgagee of his leasehold interest in the premises under the chattel mortgage, but merely to have restored the parties to the position they occupied prior to the foreclosure.
    Appeal by defendants from the Circuit Court of Cook county; the Hon. Hugo M. Friend, Judge, presiding. Heard in the third division of this court for the first district at the March term, 1926.
    Affirmed.
    Opinion filed November 17, 1926.
    Rehearing denied December 2, 1926.
    John C. Gekas, for appellants.
    No appearance for appellees.
   Mr. Justice O’Connor

delivered the opinion of the court.

By this appeal the defendants seek to reverse a decree of the circuit court of Cook county, whereby the defendants were perpetually enjoined from interfering or molesting complainants in the possession of certain premises located at the corner of North Cicero Avenue and West Lake Street, Chicago.

The record discloses that the complainants, who were tenants, were conducting a restaurant in the premises located at the intersection of North Cicero Avenue and West Lake Street, Chicago; that the defendant, Ganas, held a chattel mortgage on the personal property of the complainants located in the restaurant and claimed that the same chattel mortgage conveyed to him complainants’ leasehold interest in the premises; that on February 18, 1924, a pretended sale of the property covered by the chattel mortgage was made, and thereupon the purchasers ousted complainants from the premises.

The facts in brief compass are, as alleged in the bill and found by the decree, that Sam Pulos and John Turlas on March 1, 1923, leased part of the premises in question from Mary E. Pagan, for a period of six years at $75 per month, and on the same date they obtained another lease for the balance of the premises from Mary King and her husband, Patrick J. King, for a period of ten years at a rental of $35 per month. Upon the execution of these leases Pulos and Turlas took possession of the premises and conducted a restaurant therein. On March 12, 1923, they borrowed money from the defendant, Ganas, and executed a chattel mortgage to secure the payment of the money, and the mortgage purported to convey the chattels in the premises as well as complainants’ leasehold interest. Afterwards Pulos and Turlas sold out their interest in the restaurant so that it came to be owned and operated by complainants, Christ Kapalos, John Margaretes and George Kastran. On November 11, 1923, complainants executed a chattel mortgage to the defendant, Ganas, which assumed and confirmed the prior chattel mortgage and conveyed the chattels in the premises in question and purported to convey the leasehold interest which complainants had in the two leases. It further appears from the record that complainants paid the rent reserved by the two leases and made payments on account of the indebtedness secured by the chattel mortgage; that the defendant, Ganas, on or about February 10,1924, called at the restaurant and inquired of complainants as to whether the restaurant business was prosperous, and was advised that complainants were doing a successful business but had experienced some difficulty on account of the fact that Sam Pulos, one of the former owners of the restaurant had left Chicago owing a number of bills, although he had made an affidavit to the effect that he did not owe any bills at the time he sold out, and that some of his creditors were endeavoring to make complainants pay his indebtedness; that thereupon the defendant, Ganas, suggested that this difficulty might be obviated by a friendly foreclosure of his chattel mortgage, wherein notices would not be posted until about 30 minutes before the sale was to take place; that the property could be sold to a third party, who in turn would reconvey it to complainants and they could then make a new mortgage to Ganas. This suggestion was agreed to by complainants and a pretended sale of the property was had about three o ’clock in the afternoon of February 18, notice of the foreclosure having been posted but 30 minutes before that time. George N. Sellas was the purchaser at the pretended sale and, immediately upon the sale being made, complainants were ejected from the premises and the new owner and other defendants took possession and have since then continued to operate the restaurant despite complainants’ protest. Complainants filed their bill to be relieved from the purported foreclosure. The defendants answered the bill denying that there was any collusion and affirmed that the sale was regular and valid in every particular. The case was tried before the chancellor who found from the evidence that substantially all of the allegations of the bill had been sustained and that the sale was fraudulent and granted complainants the relief prayed for.

The defendants contend that the decree is wrong and should be reversed because the defendant, Ganas, who was the owner of the chattel mortgage had sufficient cause to feel himself insecure, and, therefore, under the provisions of the chattel mortgage, he had a right to foreclose the mortgage. It is obvious that this point cannot be sustained. The court found that Ganas had been guilty of fraud and foisted his scheme upon complainants. The evidence is not in the record and we must assume that it was sufficient to warrant the finding of the chancellor.

The defendants further contend that the decree must be reversed because complainants did not come into equity with clean hands and that in such case equity will grant no. relief. It is a maxim of equity “that he who comes into equity must come with clean hands” and where complainant does not come into equity with clean hands he will be given no relief. This rule of equity, however, has its limitations and does not apply to every unconscientious act or inequitable conduct on the part of a complainant. It will not always be applied where the parties are not in pari delicto. This principal is founded mainly upon motives of public policy and in such case “the court may give relief against the improper transaction, or may even enforce the obligation arising from the tainted agreement, at the suit of one of the parties thereto * * *. Assuming that a contract is fraudulent, or against public policy, or illegal, still, where the parties to it are not in pari delicto, and where public policy is considered as. advanced by allowing either, or at least the most excusable of the two, to sue for relief, relief may be given to him, either against the transaction by setting it aside and restoring him to his original position, or even, in some cases, by enforcing the contract, if executory.” Section 403, 1 Pomeroy on Equity Jurisprudence (4th Ed.). So in the instant case we are of the opinion that while the complainants were parties to the scheme agreed upon for the pretended foreclosure of the chattel mortgage, yet we are clearly of the opinion that complainants are the most excusable; that the scheme was originated by the defendant, Granas, and the court found that the other defendants were also involved. It would certainly be a harsh rule that would deny relief to complainants in the instant case where such rule would permit the defendants, to obtain benefits from the most glaring fraud. The holding which we make is supported by our Supreme Court in the case of Herrick v. Lynch, 150 Ill. 283.

Complaint is also made that the decree is wrong because complainants were not required to pay the amount actually found due under the chattel mortgage, and this too, despite the fact that complainants in their bill offered to do equity by paying the defendant the amount which was found to be due. We have no evidence in the record, so we are unable to say whether the chancellor was warranted in failing to require complainants to pay the amount found due. In fact we have no means of knowing what the situation was as disclosed by the evidence. In these circumstances we cannot hold that the chancellor wass. wrong.

The defendants further contend that the chattel mortgage which purported to convey the complainants’ leasehold interest in the premises was valid and binding and the court erred in divesting the mortgagee, John Ganas, of his interest in the leasehold under his chattel mortgage. We think this argument is based upon a misapprehension of the record. While there are findings in the decree to the effect that Ganas acquired no interest in the leasehold by virtue of his chattel mortgage, yet in the decretal part, it is expressly ordered and adjudged that the defendants be enjoined “from interfering with, or in any manner molesting complainants in the possession and enjoyment of the premises * * * and also the personal property specified in the chattel mortgage *• * *, except in the enforcement of the legal rights of any of said parties under said chattel mortgage.” From this it appears that the chancellor merely set aside the foreclosure sale and all subsequent proceedings taken by the defendants and did not pass upon the question whether the leasehold interests were covered by the mortgage.

The decree of the circuit court of Cook county is affirmed.

Affirmed.

Taylor, P. J., and Thomson, J., concur.


text:
    E. J. T. Moyer, Appellee, v. Vaughan’s Seed Store, Appellant.
    Gen. No. 31,059.
    1. Highways — contributory negligence of driver of automobile operated- at speed preventing stop within, range of lights question for jury. The question of contributory negligence was for the jury, in an action for damage to an automobile in collision with a truck standing in the highway on a rainy night, where there was evidence that the truck had no rear lights and was not easily discernable, although the automobile was being driven at a speed such that it could not be stopped within the range of its lights.
    2. Appeai. and brbob — want of prejudice from testimony of witness from memorandum made by another, where memorandum itself prima facie proof of facts of testimony. Defendant in an action for damage to an automobile in a collision was not prejudiced by a ruling permitting a witness to testify as to the time spent and materials used in making repairs, although he testified from a memorandum not made by himself, the items of the memorandum being prima facie reasonable and there being no evidence contra.
    3. Damages — receipted bill for automobile repairs made following damage in collision as prima facie evidence of reasonableness of amount paid. Where there is evidence, in an action for damage to an automobile by collision, that the car was damaged, that the repairs thus necessitated were made by a concern engaged in the business of making such repairs, and that the owner paid the bill presented for making such repairs, the bill itself is prima facie evidence that the amount paid was reasonable, in the absence' of evidence casting suspicion upon the transaction.

      4. Highways — visibility required of motor vehicle headlights on dark, foggy night, under Cahill’s St. ch. 95a, H11. Cahill’s St. eh. 95a, If 17, requiring motor vehicles to be equipped with headlights visible at least 200 feet in the direction towards which such motor vehicle is proceeding, does not require that such lights shall be visible at that distance on a dark, foggy night.
    Appeal by defendant from the Superior Court of Cook county; the Hon. Jacob H. Hopkins, Judge, presiding. Heard in the third division of this court for the first district at the March term, 1926.
    Affirmed.
    Opinion filed November 17, 1926.
    Joseph J. Augustus, for appellant.
    Anthony J. Schmidt and Benjamin A. Piper, for appellee.
   Mr. Justice O’Connor

delivered the opinion of the court.

Plaintiff brought suit against the defendant to recover the expenses he was put to in repairing his automobile which he claimed was occasioned by defendant’s negligence. The jury returned a verdict in favor of plaintiff for $772.50, upon which judgment was entered and the defendant appeals.

About 6.50 o’clock of the evening of November 17, 1922, plaintiff’s automobile, a five-passenger touring car was being driven east in Ogden Avenue in the vicinity of Downers Grove, Du Page county, Illinois. The evening was dark and there was a drizzling rain falling so that the driver of the automobile could not see more than 20 feet in front of the car. It was being driven at from 20 to 25 miles per hour. The evidence shows it could be stopped within 60 or 65 feet. A truck belonging to the defendant was being driven east in Ogden Avenue loaded with some shrubbery. The driver of the truck had some difficulty with his headlights and had stopped to adjust them. He got out of the truck, tightened up his headlights so that they worked properly and was in the act of getting into the truck again when it was struck from the rear by plaintiff’s automobile, pushed to one side and turned over. The driver of the truck testified that he had pulled partially off the pavement, which was 18 feet wide, and as far as it was safe for him to do before he stopped the truck, while witnesses for the plaintiff, who were in the plaintiff’s car, testified that no part of the truck was off the pavement. Plaintiff’s witnesses also gave evidence to the effect that there was no rear light on the truck at the time, while the driver of the truck testified that he had lighted the rear lamp and that it was burning when he last looked at it, which was a mile or so from the place where the accident occurred. Plaintiff’s witnesses also testified that just before the accident the driver of the automobile had dimmed his lights on account of a truck approaching from the opposite direction and that after passing this truck he switched on his lights and at that time he was within six feet of the truck and unable to prevent the collision, although he applied his brakes and did everything that he could.

The defendant contends that the judgment is wrong and should be reversed because under the evidence it was entitled to a peremptory instruction at the close of the case. In support of thisi it is argued that “it is negligence as a matter of law to drive an automobile along a public highway in thé dark at such a speed that it cannot be stopped within the distance that objects can be seen ahead of it,” and the cases of Lauson v. Town of Fond du Lac, 141 Wis. 57; Fisher v. O’Brien, 99 Kan. 621; West Const. Co. v. White, 130 Tenn. 520, and others are cited. In reply to this contention counsel for plaintiff say that they will not discuss the authorities above cited for the reason that the question under consideration has been settled by decisions in this State, and the cases of Calumet Electric St. Ry. Co. v. Lynholm, 70 Ill. App. 371 and Regan v. McCarthy, 119 Ill. App. 578, are chiefly relied upon.

In the Regan case plaintiff, who was a motorman operating a street car, sought to recover damages on account of injuries received by him when the street car struck a heavy truck, which was being driven in front of the street car and in the same direction. The night was dark and there were no lights on the truck. The court said that the motorman was guilty of negligence as a matter of law because he ran his car at such a rate of speed that he could not stop it within the distance at which he could see obstructions ahead of him on the track. In the Lynholm case, supra, there is obiter dictum to the same effect. Whether we agree with the holding of the Regan case, supra, it is not necessary for us here to say because the rule there announced was applied to street cars when operated through busy streets of a city, while in the instant case the vehicles which came into collision were au- , tomobiles and were being operated on a country road.

In the Wisconsin, Kansas and Tennessee cases above cited it has been held that one who drives an automobile on a dark, rainy night at such speed that it cannot be stopped within the distance that the driver can plainly see objects or obstructions, is guilty of negligence as a matter of law. The leading case on this subject is the Lauson case, supra, decided by the Supreme Court of Wisconsin, which has been followed by the courts of a number of other States. On the other hand, other courts have expressly refused to follow that case, among which authorities are Kendall v. City of Des Moines, 183 Iowa 866; Owens v. Iowa County, 186 Iowa 408; Burgesser v. Bullock’s, 190 Cal. 673, 214 Pac. 649; Jacobs v. Jacobs, 141 La. 272, 74 So. 992; Fleming v. Hartrick, 100 W. Va. 714, 131 S. E. 558 and Haynes v. Doxie, 52 Cal. App. 133, 198 Pac. 39, where it is held that the question whether one was guilty of contributory negligence in driving his automobile at such a rate of speed that it could not be stopped within the distance at which objects were discernible, was a question of fact to be determined upon a consideration of all the surrounding circumstances.

In considering the question, the Supreme Court of Iowa in the Kendall case, supra, held that whether the driver of an automobile who failed to have it under such control that he could stop it within the distance that he could plainly see ahead of him, was a question of fact and not a question of law. The court there expressly referred to the Lauson case, supra, and refused to follow it. And in passing on this question the Supreme Court of Connecticut, where the facts were somewhat similar to the facts in the instant case, held that whether the driver of the automobile was guilty of negligence was a question of fact to be determined from the evidence. Baldwin v. City of Norwalk, 96 Conn. 1; Rice v. Foley, 98 Conn. 372. So in the case at bar we are of the opinion that whether the driver of plaintiff’s automobile was guilty of negligence which contributed to the collision was a question of fact and not One of law, and, therefore, the peremptory instruction requested by defendant was properly refused. Of course there may be situations where it may be negligence as a matter of law for one to drive an automobile along a public highway in the nighttime at such speed that it cannot be stopped within the distance that objects can be seen ahead of it. The test in such cases is, would all reasonable minds reach the conclusion that the conduct of the driver of the automobile was violative of rational standards of conduct applicable to persons in similar situations? Kelly v. Chicago City R. Co., 283 Ill. 640; Bale v. Chicago Junction R. Co., 259 Ill. 476; Louthan v. Chicago City Ry. Co., 198 Ill. App. 329; Rehthaler v. Crane Co., 218 Ill. App. 267.

In the instant case we think it cannot reasonably be said that the driver of plaintiff’s automobile was guilty of negligence as a matter of law. The night was dark and misty. The plaintiff was driving along a country road where standing vehicles were not to be expected. There is evidence to the effect that there was no rear light on the truck; that the color of the truck and its load blended with the coloring of the surface of the road. These, and many other circumstances which might be alluded to, show that all reasonable minds would not reach the conclusion that the driver of plaintiff’s automobile was acting as no rational person would act under like circumstances, and, therefore, the question to be determined was one of fact and not law. It is not argued that the finding of the jury in favor of plaintiff on this question is against the manifest weight of the evidence.

The defendant next contends that the court erred in overruling objections to questions put to one of plaintiff’s witnesses who was being interrogated concerning the extent of the repairs required to be made on plaintiff’s automobile as a result of the collision. This witness was asked concerning the number of hours of labor employed in making the repairs on the automobile and the prices paid for certain parts of the automobile that were replaced, all of which were rendered necessary as a result of the collision, and he was testifying from a memorandum which showed the number of hours and the parts used, but which memorandum had not been prepared by himself. We think the ruling of the trial judge was substantially correct, but in any event, the defendant cannot complain, because we have repeatedly held that where an automobile has been damaged and the machine is taken for repairs to one who is engaged in the business of repairing automobiles and the repairs that are made were those required as a result of the accident, and the repairman’s bill has been presented to the owner of the damaged automobile and paid and there is nothing in the evidence to cast suspicion upon the transaction, the amount paid is prima facie reasonable. Cloyes v. Plaatje, 231 Ill. App. 183. See also Whole sale Grocery Corporation v. Richheimer Brokerage Co., 233 Ill. App. 64; Darling & Co. v. Yellow Cab Co., 238 Ill. App. 326; Gold v. Rousso, 238 Ill. App. 427; Wicks v. Cuneo-Henneberry Co., 319 Ill. 344; Roth v. Fleck, p. 396, infra; Sunbeam Beverage Co. v. Cunningham, p. 401, infra. This holding was apparently not agreed to by another division of this court. Probasco v. Crane Co., 238 Ill. App. 287. But we think the holding in the Cloyes case is supported by the authorities above cited which includes the Gold, Roth and Cunningham cases, supra, decided by the First Division of this court. Moreover the Supreme Court of this State in the late case of Wicks v. Cuneo-Henneberry Co., supra, held that the payment of a physician’s bill is prima facie evidence that the bill was reasonable. This case goes much further than the Cloyes case. In that case we only held that in ordinary business transactions the amount charged for repairs and which had been paid was prima facie evidence that the amount was reasonable, while the Supreme Court in the Wicks case applies the same rule to a physician’s bill which is for professional services. In the instant case the evidence shows that the automobile was repaired; that the repairs were rendered necessary on account of the collision and that a concern engaged in the repair of automobiles presented its bill which was paid. There being nothing to cast suspicion upon the transaction, this evidence was sufficient prima facie to show that the amount charged was reasonable and there is no other evidence in the record.

The defendant further contends that the court erred in refusing to give an instruction requested by it, by which it was sought to have the jury told that by a statute of this State [Cahill’s St. ch. 95a, [[17] an automobile when upon a public highway between one hour after sunset and one hour before sunrise should carry headlights “visible at least two hundred (200) feet in the direction toward which each motor bicycle or motor vehicle is proceeding” and the instruction was further to the effect that if the jury found from the evidence under the instructions of the court that plaintiff’s automobile did not have such lighted lamps and that plaintiff’s failure to observe the statute in that respect contributed to the collision, then their verdict should be for the defendant. We think this instruction was properly refused because it was a dark, misty night and of course the headlights were not such as to be visible 200 feet in front of the automobile. The statute we think should not be so construed as to require that lights be visible on a foggy, dark night, 200 feet in front of the machine.

None of the contentions made by the defendant can be sustained and therefore the judgment of the superior court of Cook county is affirmed.

Judgment affirmed.

Taylor, P. J., and Thomson, J., concur.


text:
    Jacob H. Hall, Appellee, v. Annie Harris, Appellant.
    Gen. No. 31,078.
    1. Mechanics’ liens — right of recovery by contractor pending settlement of outstanding claims of liens in favor of subcontractors. A contractor is not entitled to judgment against the owner for the full unpaid balance on their building contract, where subcontractors have served notice upon the owner of their claims to liens for work done upon the building and the action was brought before the expiration of the statutory period allowed to such subcontractors to perfect their liens, without proof that such subcontractors have been paid in full or have waived their right to liens.
    2. Mechanics’ liens — right of action by contractor failing to give notice of names of subcontractors furnishing labor and ma

      ferial. The fact that a contractor has failed to furnish to the owner' a verified statement showing the names of subcontractors furnishing labor and material for the improvement, as required by Cahill’s St. ch. 82, if 5, does not preclude the contractor from maintaining an action to recover a balance due under such contract.
    Appeal by defendant from the Municipal Court of Chicago; the Hon. Asa G. Adams, Judge, presiding. Heard in the third division of this court for the first district at the March term, 1926.
    Reversed and remanded.
    Opinion filed November 17, 1926.
    William Schulze, for appellant.
    Charles R. Casler, for appellee.
   Mr. Justice O’Connor

delivered the opinion of the court.

Plaintiff brought suit against the defendant to recover a balance of the contract price for constructing a garage. The amount he claimed was $176. The jury returned a verdict in plaintiff’s favor for $156, judgment was entered on the verdict and the defendant appeals.

Plaintiff’s evidence tends to show that he entered into an oral agreement with the defendant to construct a garage for her for $195; that he proceeded to construct the garage and was required to do extra work amounting to $55, making a total of $250, and that he had been paid $74 on account, leaving a balance due him of $176. There was a dispute between the parties as to whether the work had been properly done and whether plaintiff was to be paid for the extra work in addition to the contract price. The evidence further shows that plaintiff did not give the defendant a sworn statement giving the names of the parties furnishing labor and material as required by section 5 of the Mechanics’ Liens Act [Cahill’s St. ch. 82, [[5]. The evidence also shows that defendant had been served with two notices for liens by parties who had performed labor in the construction of the garage. One claimed a balance of $55.50 and the other $103.50, making a total of $159, and the plaintiff testified that he owed these two sums to the persons who served the notices.

At the close of the case the court instructed the jury that the evidence concerning these two claims should be disregarded. This was clearly erroneous, because under the Mechanics’ Liens Act the defendant would be required to pay the two claimants out of the contract price. The court apparently held the Mechanics’ Liens Act inapplicable. Section 5 [Cahill’s St. ch. 82, [¶] 5] of that act provides that it shall be the duty of the contractor to give the owner a verified statement in writing of the names of all parties furnishing material and labor and the amounts due or to become due to each. By section 21 [Cahill’s St. ch. 82, [¶] 21] it is provided that every workman who furnishes labor for the contractor shall be known as a subcontractor and shall have a lien for the value of the labor performed under certain conditions specified in the act. Section 24 [Cahill’s St. ch, 82, [[24] provides that subcontractors who furnish labor may cause a written notice of their claims to be served upon the owner or his representatives of the amount due or to become due on account of labor performed. And by section 26 [Cahill’s St. ch. 82, [¶] 26] wages for labor are preferred. Section 27 [Cahill’s St. eh. 82, [¶] 27] of the act provides that when the owner or his agent is notified of a claim by a subcontractor, the owner shall retain from the money due the contractor an amount sufficient to pay the claims of the subcontractor or workmen of whose claim he is notified “and shall pay over the sum to the parties entitled thereto.” And this section further provides that all such payments made to subcontractors or workmen “shall, as between such owner and contractor, be considered the same as if paid to such contractor. Any payments made by the owner to the contractor after such notice without retaining sufficient money to pay such claims, shall be considered illegal and made in violation of the rights of the laborers and subcontractors, and the rights of such laborers and subcontractors to a lien shall not be affected thereby.” It further provides that the balance, if any, shall be paid to the contractor. And by section 32 [Cahill’s St. ch. 82, [¶] 32] it is provided that no payments made by the owner to the contractor shall be regarded as rightfully made as against any subcontractor or laborer, unless subcontractors and laborers, of whose claims the owners have been properly notified, have been paid.

In the instant case plaintiff was not entitled to a judgment for the full amount because if this were true and he failed to pay the two- persons who served notice for lien, they could, by complying with the statute, make the owner pay again. Brennan v. William P. McEvoy & Co., 196 Ill. App. 336.

In the instant case, the evidence shows that the defendant owner was served with notices by the two.subcontractors on July 17, 1925, claiming that balances aggregating $159 became due them from the plaintiff contractor on July 7, 1925. Under the provisions of section 27 [Cahill’s St. ch. 82, [[27] of the Mechanics ’ Liens Act, it then became the duty of the defendant owner to withhold, from any payments made the contractor, an amount sufficient to meet these balances due the subcontractors, or run the risk of being obliged to pay them such balances, if she nevertheless paid the plaintiff contractor in full. But, under the provisions of section 33 [Cahill’s St. ch. 82, [[33] of the act, the subcontractors would be obliged to begin suit against the owner within four months after July 7, 1925, in order to perfect their lien. Without such action on their part, their notices would be of no avail. Nor, without such action could the subcontractors sue the owner at law and recover, inasmuch as section 28 [Cahill’s St. eh. 82, 28] of the act provides that before such a claim can be reduced to a judgment at law, the claimant must show he is entitled to his lien as provided for in the act. At the time this case was heard in the trial court (October 27, 1925) the four months, within which the subcontractors who had served their notices on the defendant on July 17,1925, could have perfected their liens in the manner provided by the act, had not expired. In our opinion the plaintiff contractor would not be entitled to a judgment against the owner within that four months’ period, unless he exhibited either waivers of lien or receipts in full, executed by the subcontractors. This he did not do. On the contrary he still owed the balances claimed by the subcontractors.

The contention that the judgment is wrong for the reason that plaintiff failed to give the defendant a verified statement showing the names of the subcontractors as required by section 5 [Cahill’s St. ch. 82, 5] of the act, is untenable. The defendant in support of this contention cites the case of Gilmore v. Courtney, 158 Ill. 432. In that case the court held that the suit could not be maintained without the contractor giving the statement required by section 35 of the Act of 1887. That section provided inter alia: “Until the statement provided for in this section is made in manner and form as herein provided, the contractor shall have no right of action or lien against the owner.” Section 5 of the present act contains no such provision.

The judgment of the municipal court of Chicago is reversed, and the cause remanded.

Reversed and Remanded.

Taylor, P. J., and Thomson", J., concur.