text:
    American Type Founders Company, Appellee, v. Metropolitan Credit and Discount Corporation, Appellant.
    Gen. No. 36,432.

      Opinion filed June 30, 1933.
    Rehearing denied July 11, 1933.
    Luster & Luster, for appellant; Julian J. Luster of counsel.
    Vose & Lind, for appellee; Frederick A. Lind and John D. Clancy, of counsel.
   Mr. Justice Gridley

delivered the opinion of the court.

On April 11, 1932, plaintiff commenced a 4th class action in replevin to recover the possession of certain printers’ machines, equipment and supplies of the stated value of $500, which it was alleged defendant had wrongfully taken and wrongfully detained. When the bailiff under the writ was about to take the property and deliver it to plaintiff, defendant, on April 27, 1932, gave a forthcoming bond under the statute in the sum of $1,000. Upon a trial without a jury on September 30, 1932, the court found that “the right to the possession of the property replevied is in plaintiff” and assessed plaintiff’s damages for the wrongful detention of the property at one cent. Judgment was entered upon the finding against defendant and the present appeal followed.

The following facts in substance appear from the evidence:

Plaintiff, hereinafter called the Founders company, is a manufacturer and seller of printers’ equipment and supplies, having a plant and doing business at Chicago. H. M. Van Hoesen Corporation, hereinafter called the Van Hoesen company, is engaged in the printing business at Chicago, producing advertising material for its customers. Defendant, hereinafter called the Credit company, is engaged in the business of loaning money on notes, secured by chattel mortgages, etc. On October 15, 1929, the Founders company agreed to sell to the Van Hoesen company the property herein involved, subject to the terms and conditions of a certain “conditional sale contract” then executed. In the contract the Van Hoesen company agreed to pay to the Founders company the total sum of $1,190.33, of which amount $290.33 should be paid upon delivery of the property. It was further agreed that the Van Hoesen company, for the deferred payments, should execute and-deliver its 18 notes of $50 each, payable monthly — the first on November 15, 1929, and the last on April 15, 1931. The Van Hoesen company made the payment of $290.33 and executed and delivered the notes, and the property was delivered to it at its plant in Chicago. It was further provided in the contract that “until the whole amount, as above set forth, has been paid, the ownership of said property shall be and is to remain” with the Founders company; that in the event of the Van Hoesen company “failing to make any or all of the payments at the times and in the manner indicated,” the Founders company “may take immediate possession of the property wherever found and sell same at public or private sale, or as much thereof as shall be sufficient to pay the amount due or to become due, with all costs pertaining to the taking, keeping, advertising and selling of said property”; and that “any extension of time to make any of the payments herein stated shall not of itself be construed as a waiver of any of the provisions of this agreement.” The contract was not recorded.

The Van Hoesen company was somewhat backward in making some of the deferred payments as they fell due. In the latter part of the year 1930 and extending into the year 1931 it became financially embarrassed and its affairs were taken over temporarily by the Chicago Association of Credit Men. All of the notes maturing prior to January 15, 1931, were ultimately paid to the Founders company, either by the Van Hoe-sen company or by said association, but four of the notes, aggregating $200, and due respectively on January 15, February 15, March 15 and April 15, 1931, were not paid. After April 15, 1931, the Van Hoesen company continued to operate its business, but the Founders company, notwithstanding the balance of the indebtedness owing to it had fully matured, did not take the property from the possession of the Van Hoe-sen company.

During November, 1931, Harold W. Van Hoesen, president of the Van Hoesen company, had negotiations with George J. Bloom, an officer of the Credit company, looking to the former company obtaining a loan from the latter, to be secured by a chattel mortgage upon practically all of the chattels in the Van Hoesen company’s plant, including the property herein involved. After the Credit company had caused an inspection to be made of the property, it agreed to make a loan to the Van Hoesen company of $3,750, to be evidenced by notes and secured by a chattel mortgage on the property. On November 23,1931, the loan was made and the notes and mortgage were executed and delivered. The mortgage was recorded on the following day. The Founders company had no actual notice of the above negotiations or of the making of the mortgage. It is in the usual form, and by it the Van Hoesen company, in consideration of $3,750, sold and conveyed to the Credit company, as security, all of the property (describing it) in the Van Hoesen plant, including the property herein involved. The notes were 12 in number and payable to bearer. Those numbered 1 to 11, inclusive, were for $125 each, payable at monthly intervals. Note No. 12 was for $2,375, payable in 12 months, viz., on November 23, 1932. On the day of the delivery of the notes and mortgage, Harold W. Van Hoesen and another officer signed and delivered to the Credit company an affidavit, stating that the Van Hoesen company “is the owner of all machinery and equipment listed in chattel mortgage of even date,” that “there are no other chattel mortgages or liens on this property,” that no part thereof “has been sold to this corporation subject to any conditional sale agreement,” and that affiants make the affidavit “for the purpose of inducing” the Credit, company “to make the above mentioned mortgage on the above manufacturing and printing plant.” As to the particular property, mentioned in the conditional sale contract, the affidavit was false.

After the giving of the mortgage the Van Hoesen company continued to conduct business at its plant. The chattel mortgage notes, Nos. 1, 2 and 3, were paid, but note No. 4, maturing March 23, 1932, was not paid, and on April 5, 1932, the Credit company, under the provisions of the mortgage, elected to declare and did declare the entire unpaid balance of $3,375 immediately due and payable, put its custodian in possession of the plant and posted notices that a foreclosure sale would there be held on Saturday morning, April 9, 1932. The sale was had and all of the property, including the property herein involved, was sold for $3,075, to an agent of the Credit company, he being the only bidder, and the Credit company took possession of all of the property. On the next business day (April 11), and while all of the property still remained on the premises of the Van Hoesen company, the Founders company commenced the present action in replevin, and on April 27, 1932, the Credit company gave its forthcoming bond to the bailiff, as first above mentioned.

In the meantime, as disclosed by uncontradicted testimony, the Founders company, late in March, 1932, for the first time received notice that the chattel mortgage had been given and that it covered the property herein involved as well as other property. On March 31, a representative of the Founders company went to the Van Hoesen plant with a truck and men for the purpose of taking away the property mentioned in the conditional sale contract, but was persuaded from so doing by the statement of Harold W. Van Hoesen that arrangements were being made with the Credit company for an additional loan, and that by Monday, April 4, the balance due on the conditional sale contract would be paid. On April 4, and again on April 6, William H. Holtz, credit manager of the Founders company, interviewed representatives of the Credit company, informed them of Van Hoesen’s said statements, and showed them the conditional sale contract, but on each occasion Holtz was told that the contract was “no good,” for the reason that all the deferred payments mentioned therein were “past due,” and that the Credit company was going to foreclose the chattel mortgage on all the property covered by it in the Van Hoesen plant. On Saturday, April 9, Holtz attended the foreclosure sale and objected to the selling of the particular property mentioned in the contract, on the ground that the Founders company was the owner thereof, but no attention was paid to Holtz’s objections and the foreclosure sale was made of all the property.

The main point’s here urged by counsel for the Credit company, as grounds for the reversal of the judgment appealed from, are: (1) that under the provisions of section 23 of the Uniform Sales Act, Cahill’s St. ch. 121a, if 26, the Founders company (plaintiff) “is by its conduct precluded from asserting its title reserved under the conditional sale contract as against the Credit company” (defendant), and (2) that “the law will not permit conditional sale contract holders, who do not re-possess the property within a reasonable time after default in the payments, to assert their secret liens against innocent third, persons.” The present record discloses that counsel made substantially the same points in a colloquy between him and the trial judge, which ensued after the judge had indicated that he would enter a finding in favor of plaintiff and had stated his reasons therefor, which colloquy is in part as follows:

“Mr. Luster (attorney for the Credit company): Let me make one suggestion. . . . This property was conveyed to us in November, 1931, the time we took possession of it (April 5, 1932) is not the governing time. It is when we gave our good money, taking the property as security.

“The court: You did not give your money on the strength of any representation made by the Founders company?

“Mr. Luster: No, but we did give our money based on the representation (1) that, because of the Founders company not repossessing their stuff within a reasonable .time after (the maturity of) the conditional sale contract, this man (Van Hoesen) was put into the position of defrauding us. If the Founders company had repossessed their property we would not have been placed in the position we are. . . . The law is, if the owner of the property does nothing, that is, if he does not repossess himself of the property, he does something to let the other fellow hoodwink us.

“The court: No. . . . You apparently haven’t gotten the force of my former statements. ... I want to make a further statement for the record, viz., that there is no evidence in the record that the defendant corporation (Credit company) in making the chattel mortgage loan relied in any way upon any representation made by the Founders company. ’ ’

The provisions of subsection 1 of section 20, and of subsection 1 of section 23 of the Uniform Sales Act, in force in Illinois since July 1, 1915, Cahill’s St. ch. 121a, 1JH 23, 26, are as follows (italics ours):

“Sec. 20 (1) Where there is a contract to sell specific goods, or where goods are subsequently appropriated to the contract, the seller may, by the terms of the contract or appropriation, reserve the right of possession or property in the goods until certain conditions have been fulfilled. The right of possession or property may be thus reserved notwithstanding the delivery of the goods to the buyer or to the carrier or other bailee for the purpose of transmission to the buyer. ’ ’

“Sec. 23 (1) Subject to the provisions of this Act, where goods are sold by a person who is not the owner thereof, and who does not sell them under the authority or with the consent of the owner, the buyer acquires no better title to the goods than the seller had, unless the owner of the goods is by his conduct precluded from denying the seller’s authority to sell.”

Since the passage of the Uniform Sales Act, the leading case in Illinois concerning conditional sale contracts (decided in October, 1925, and affirming the judgment of the second division of the Appellate Court for the first district in 236Ill. App. 162) is Sherer-Gillett Co. v. Long, 318 Ill. 432. In that case it appears that on April 3, 1924, the plaintiff (Sherer-G-illett company) entered into a contract of conditional sale with one Taylor for the sale of a display counter to be used by him in his grocery store; that the contract provided that Taylor was to pay to plaintiff for the counter $10 in cash and $10 each month until the agreed purchase price was paid, and the title to the counter was to remain in plaintiff until the full payment of the purchase price had been made; that after the counter had been placed in Taylor’s store, but before the maturity of the entire purchase price, he sold the counter to defendant (Long) for $100, who then had no notice of the reservation of the title in plaintiff and no notice of any rights of plaintiff by virtue of the conditional sale contract; that after defendant had removed the counter from Taylor’s store, and Taylor had ceased making payments on said contract, plaintiff replevied the counter; that on the trial of the replevin suit there was a finding and judgment in favor of defendant (Long); that the Appellate Court reversed that judgment and entered a judgment finding the right of property in plaintiff (Sherer-Cillett company) and assessing its damages at one cent; and that the Supreme Court, on appeal and the granting of a certificate of importance, affirmed the judgment of the Appellate Court. In the opinion of the Supreme Court it is said (pp. 433, 434):

“Before sales became a subject of uniform legislation it was settled by an overwhelming weight of authority that the seller is not estopped by his conduct in delivering the possession of goods to the buyer upon a contract of conditional sale from asserting his title against one who purchases from the buyer, relying upon the apparent title of the latter (citing 1 Williston on Sales, 2d ed., sec. 324; Harkness v. Russell & Co., 118 U. S. 663); but in this State we had held that a delivery of personal property to the purchaser upon a contract of conditional sale, with a retention of title in the seller, amounts to a constructive fraud, which postpones the right of the real owner in favor of those, who have dealt without notice with the conditional vendee, who has been given the indicia of ownership. (Gilbert v. National Cash Register Co., 176 Ill. 288; Brundage v. Camp, 21 id. 329.) Uniformity in the law of the several States pertaining to sales being deemed essential to the commercial welfare of the country, leaders of the American bar prepared and submitted to the legislatures of the several States a uniform sales act and a uniform conditional sales act. The former was adopted in this State in 1915 and is the law today.”

After stating that by section 20 of the act “the validity of a contract of conditional sale is recognized,” and after setting forth the provisions of subsection 1 of said section 23, our Supreme Court further said (pp. 434, 435, italics ours):

“It is a general, well-established principle that no one can transfer a better title than he has. (Drain v. LaGrange State Bank, 303 Ill. 330, 335; Williams v. Merle, 11 Wend. 80.) . . . Section 23 declares, in harmony with the settled law of estoppel, that the owner of the goods may by his conduct be precluded from denying the seller’s authority to sell. In order to give rise to an estoppel, however, it is essential that the party estopped shall have made hy act or word a representation, and that the person setting up the estoppel shall have acted on the faith of this representation in such a way that he cannot without damage withdraw from the transaction. (1 Williston on Sales, 2d ed., sec. 312.) What representation has appellee (Sherer-Grillett Co.) made upon which appellant (Long) has relied to his damage 1 What conduct of appellee precludes it from denying the seller’s (Taylor’s) authority to sell. It did not clothe Taylor with indicia of title. Clothing another person with indicia of ownership does not mean simply giving him possession of a chattel. Possession is one of the indications of title, but possession may be delivered by the owner to a lessee, a bailee, an agent or a servant. Owners of chattels must frequently entrust- others with their possession, and the affairs of men could not be conducted unless they could do so with safety, so long as the possession of the chattel is not accompanied by some indicium of ownership or the right to sell. (Drain v. La Grange State Bank, supra, p. 336.) Whether the legislature should adopt the companion act, which provides for the recording of contracts of conditional sale, is not for this court to decide. The Uniform Sales Act recognizes the validity of such contracts and specifically provides that no title can be passed by the purchaser of goods under such a contract ‘unless the owner of the goods is by his conduct precluded from denying the seller’s authority to sell.’ There is no basis for the operation of an estoppel in this record.”

In the present case it appears that the last four notes of $50 each, mentioned in the conditional sale contract, were not paid at the respective maturities to the Founders company; that the entire indebtedness matured on April 15, 1931; that thereafter the Founders company did not retake possession of the particular property mentioned in the contract but allowed it to remain in the Van Hoesen plant; that on November 23, 1931, without the knowledge or consent of the Founders company, the Van Hoesen company, as security for a loan of $3,750, executed the chattel mortgage on the particular property (which it did not own), as well as on a large amount of other property (which it did own), to the Credit company; that early in April, 1932, a matured chattel mortgage note not having been paid, the Credit company started proceedings to foreclose the mortgage; that then for the first time the Founders company learned of the existence of the mortgage; that its representative (Holtz), being present at the foreclosure sale, objected to any sale of the particular property, claiming that the Founders company was the owner of it; that notwithstanding the objections, the particular property, together with the other property, was sold at the foreclosure sale on Saturday, April 9, 1932; and that on the next business day (April 11) the Founders company commenced the present replevin suit. It further appears that on the trial it was not claimed by the Credit company that, when it made its chattel mortgage loan to the Van Hoesen company, it did so on the faith of any representation, either by act or word, of the Founders company. The only claim then made (also urged on this appeal) was in substance that, because the Founders company, after the Van Hoesen company had defaulted in some of the last of the deferred payments mentioned in the conditional sale contract, did not repossess itself, or make any attempts so to do, of the particular property within a reasonable time after the maturity of the entire indebtedness (April 15, 1931), the Founders company, under the above quoted provisions of said section 23 of the Uniform Sales Act, was estopped from successfully maintaining this replevin action.

In our opinion, and as said in the Sherer-Gillett case, supra, “there is no basis for the operation of an estoppel in this record.” In Dodd v. Rotterman, 330 Ill. 362, 371, 372, it is said: “Estoppel must be based upon some statement or conduct of the person claimed to be estopped by which the person claiming the estoppel has been misled or induced to do something which he would not have done but for the statement or conduct of the other and by which he has been damaged. ’ ’ And we think, under the evidence, the quoted provisions of the Uniform Sales Act, and the decision and holdings of our Supreme Court in the Sherer-Gillett case, supra, that the municipal court was amply justified in making the finding and in entering the judgment appealed from. '

Counsel for the Credit company rely upon the holdings, and decision in Dayton Scale Co. v. General Market House Co., 248 Ill. App. 279, decided by the third division of the Appellate Court for this district in March, 1928, but the judgment of the Appellate Court in that case was reversed and the cause remanded by the Supreme Court in 335 Ill. 342, for reasons stated in the opinion of the Supreme Court at page 345. In December, 1930, the same division of the Appellate Court for this district decided the case of Silverthorne v. Chapman, 259 Ill. App. 289, which is somewhat similar in its facts to those of the present case. It appears that in September, 1927, Silverthorne had sold to one Bonsqnet an automobile under a conditional sale contract which provided that “ title to the car and extra equipment shall not pass by delivery to the buyer, but shall remain vested in and be the property of the seller or assigns, until the purchase price has been fully paid.” The purchase price was stated in the contract to be $1,125, and was evidenced by Bousquet’s judgment note in that sum, payable to Silverthorne “in installments of $50 on the 29th day of each succeeding month.” After paying some of the installments Bousquet did not make payments on numerous subsequent installments as they fell due, but Silverthorne did not take the possession of the car away from Bousquet. While Bousquet’s defaults continued, but just before his last stipulated payment under the contract had become due and payable to Silverthorne, Chapman, who had obtained a judgment in the superi- or court of Cook county against Bousquet, caused the car to be seized while in Bousquet’s possession on June 6, 1929, under an execution on said judgment. Shortly thereafter, and upon a trial of the right of property, the county court of Cook county found the right of property of the car in Silverthorne and entered judgment accordingly, from which judgment Chapman appealed. In the county court, as well as upon appeal, Chapman, relying upon the provisions of section 23 of the Uniform Sales Act, contended that “the conduct of Silverthorne, in allowing Bousquet to retain possession of the car long after he had defaulted in his payments under the contract without exercising any of the rights given to the vendor under the agreement, and thus clothing him with the indicia of ownership, amounted to an estoppel within the meaning of section 23, and that as a result thereof Silverthorne should be precluded from denying Chapman’s paramount right.” The Appellate Court affirmed the judgment of the county court, and in its opinion, after mentioning one of the holdings of our Supreme Court in the Slier er-Gillett case, supra, said in part (p. 292): “It appears from this record that Chapman in no way relied upon the ownership of the car by Bousquet in extending credit to him, and that Silverthorne neither said nor did anything which might be construed to constitute an estoppel. Therefore section 23 is clearly not applicable to the facts in this case.” •

Since the present case was tried, the Appellate Court for the third district, on January 16, 1933, decided the case of Haines v. Doss, 269 Ill. App. 179, to which decision counsel for the Credit company call our attention in their reply brief. Without mentioning the decision or holdings of our Supreme Court in the Sherer-Gillett case, supra, but distinguishing the Silverthorne v. Chapman case, supra, it is decided in the Haines case, in substance: (1) that a vendor should assert his rights under a conditional sale contract within a reasonable time after the expiration of the time of final payment thereunder, and (2) that a conditional vendor of an automobile is estopped to assert his rights as against an execution creditor of the conditional vendee where the time for final payment under the contract was 10 months before the levy of execution, and the conditional vendor failed to assert his rights for such period of time. However correctly that case may have been decided, its facts, as we read the opinion, are different from those in the present case, and the issue in that case was not, as in the present case, whether the evidence sufficiently warranted an estoppel under the provisions of section 23 of the Uniform Sales Act.

As bearing upon the contentions of counsel for the Credit company in the present case, the decision and holdings of the United States Court of Appeals for the Seventh Circuit, in the case of In re Steiners Improved Dye Works (McKey, Receiver v. Troy Laundry Machinery Co.), 44 F. (2d) 557, may he referred to. It was there decided in substance that the conditional seller’s failure to repossess chattels for over eight months after the last payment became due did not create an estoppel, under the Illinois Uniform Sales Act, in favor of the receiver in bankruptcy of the estate of the conditional buyer. It appears that in the bankruptcy court a reclamation petition, filed by the conditional seller (Troy Laundry Machinery Company), for the return to it of. certain machinery was allowed, that from the order of allowance the receiver appealed and that the Court of Appeals affirmed the order.' The court said, in part (p. 559):

“The contract here was to sell specific goods, and the Illinois statute provides that the seller may, by the terms of the contract, reserve the right of possession or property in the goods until certain conditions have been fulfilled, and may do that notwithstanding the delivery of the goods to the buyer. It was specifically agreed in the contract: (a) That bankrupt would pay $4,930; (b) that the title to the property should remain in appellee until fully paid for in cash; (c) that notes would be given by the buyer; (d) that the giving of the notes should not affect the title reserved by appellee; (e) that collection of the notes after default should not be considered as a waiver, or in any manner or form affect the title of appellee or its right thereafter to reclaim said chattel.

There is no statute of limitation, touching the time during which the possession and right of property may be retained by the seller, nor is there any limitation as to the time within which the seller must retake the property in case of default. There is nothing in the statute to indicate that the seller, under such a contract, is subject to any limitation other than the general statute of limitations applicable to written contracts. We see no reason, if the purchase price is not fully paid, why the seller may not act at any time within the period of limitations unless he is estopped. An estoppel is based upon a wrong. (Sherer-Gillett Co. v. Long, 318 Ill. 432; Commercial Bank v. Canal Bank, 239 U. S. 520.) It is not here insisted that anybody was injured by any act or failure to act on the part of appellee. The failure of appellee to take possession upon default did not induce any one to pursue a course of action to his hurt.”

For the reasons indicated, the judgment of the municipal court of September 30, 1932, appealed from, is affirmed.

Affirmed.

Sullivan, P. J., and Scanlan, J., concur.


source: Caselaw Access Project

author: Mb. Justice Scanlan

license: Public Domain

text:
    Charles H. Joy et al., Appellees, v. Ditto, Incorporated, et al., Defendants. Guy H. Abbott, Appellant.
    Gen. No. 36,517.

      Opinion filed June 30, 1933.
    Opinion slightly modified and rehearing denied July 12, 1933.
    Knapp, Beye, Allen, Cochean & Cushing, for appellant ; William Beye, R. C. Stevenson and Walteb H. Velde, of counsel.
    Cattell & Waldeon, for appellees; Archibald Cat-tell, Carl A. Waldeon and George W. Dammann, of counsel.
   Mb. Justice Scanlan

delivered the opinion of the court.

Complainants, stockholders in Ditto, Incorporated, a corporation, filed their hill against the corporation and certain of its officers and directors, alleging that the corporation, without authority, had unlawfully paid to the individual defendants sums of money in the form of bonuses. The bill prayed for an accounting and recovery of the amounts unlawfully paid. The cause was referred to a master, who heard evidence and filed a report finding that bonuses had been “illegally and improperly made” to defendants G. H. Abbott, J. M. Cheney and K. M. Henderson, and recommending that the said payments “should be returned to the treasury of the corporation, for the benefit of all stockholders.” The bill prayed for an accounting and restitution from the individuals to the corporation, or, in the alternative, that the individual defendants be required to pay direct to the individual complainants such proportionate share of said reimbursement as the court might find due and owing. Prior to the entry of the decree, the parties stipulated that payment, if any, should be made direct to the individual complainants, and the decree was entered in accordance with the findings and recommendations of the master and the said stipulation. The decree ordered “that Guy H. Abbott pay the complainants $12,675.88, as follows: To Charles H. Joy, $4,008.18, to Mary G. Joy, $3,006.14, to Charles H. Joy, Jr., $2,905.93, to A. L. Joy, $2,755.63; that Joseph M. Cheney pay to the complainants $5,407.56, as follows: To Charles H. Joy, $1,709.90, to Mary G. Joy, $1,282.43, to Charles H. Joy, Jr., $1,239.68, to A. L. Joy, $1,175.55; that K. M. Henderson pay to the complainants $1,969.79, as follows: To Charles H. Joy, $622.86, to Mary G. Joy, $467.14, to Charles H. Joy, Jr., $451.58, to A. L. Joy, $428.21.” The decree ordered that the bill be dismissed for want of equity as to all of the defendants save Abbott, Cheney and Henderson. Defendants Abbott, Cheney and Henderson severally appealed but in this court the three appeals (Appellate Court Gen. Nos. 36,517, 36,518 and 36,519) have been consolidated for hearing.

The theory of complainants is that defendants Abbott, Cheney and Henderson were directors and officers of the corporate defendant Ditto, Incorporated, and as such officers were trustees of the corporate funds, and that they received, without antecedent authority from the board of directors, bonus compensations over and above their fixed salaries, and that such bonuses were therefore illegally paid to them and cannot be retained by them.

Defendants contend: “ (a) That all of the compensation, consisting of fixed salary and bonus percentage compensation, paid by Ditto, Incorporated, to GL H. Abbott, J. M. Cheney and K. M. Henderson, was paid to said individuals for non-official services rendered by them to the corporation outside the scope of their duties as officers and directors; (b) that said services were rendered and said compensation was paid under and pursuant to valid and binding contracts of employment entered into between the corporation by its chief executive and said individuals; (c) that said services were rendered under circumstances which precluded the presumption that they were gratuitous; (d) that said total compensation, including fixed salary and bonus, was reasonable; (e) that said employment contracts were entered into by said corporation in accordance with its customary method of doing business; (f) that said employment contracts and the payments of compensation thereunder were ratified and approved by the board of directors and stockholders; (g) that the complainants are estopped, and (h) barred by their laches. ’ ’

As we have reached the conclusion that the decree should be reversed, we deem it necessary to make a statement of certain salient facts, as we find them: The sole complainants are Charles H. Joy, Mary Gr. Joy, Charles H. Joy, Jr., and A. L. Joy. No other stockholders appear to have aided the claim made by the complainants and none acquired any benefit through the decree. None of the complainants is related to J. A. Joy, one of the defendants. Complainants own 12.7% of the capital stock of the defendant corporation. From 1920 to October 1, 1928, the principal complainant, C. H. Joy, owned 200 shares of stock and on the last date transferred 60 shares of the same to C. H. Joy, Jr., his son, and 60 shares to.Mary Gr. Joy, his wife. Complainant A. L. Joy, a brother of C. H. Joy, has owned 55 shares of the stock since 1912. The defendant corporation was organized, in 1910, under the laws of the State of West Virginia. At first it “was a very small concern . . . . and was practically on the rocks,” when defendants J. A. Joy and'T. W. Robinson, sometime in 1910, took over the operation of the company, reorganized it, and J. A. Joy was made president. The latter and Robinson “put in some money” in the company and under their careful management it “slowly but steadily grew” into a profitable business. In 1917 the first dividend was paid to the stockholders. The following dividends were paid to the stockholders from 1920 to 1929, both inclusive:

1920 — 16% of par value of Capital Stock.
1921 — 16% 7 7 7 7 7 7 7 7 7 7 7 7
1922 — 16% 7 7 7 7 7 7 7 7 7 7 7 7
1923 — 20% 7 7 7 7 7 7 7 7 7 7 7 7
1924 — 40% 7 7 7 7 7 7 7 7 7 7 7 7
1925 — 60% 7 7 7 7 7 7 7 7 7 7 7 7
1926 — 90% 7 7 7 7 7 7 7 7 7 7 7 7
1927 — 60% 7 7 7 7 7 7 7 7 7 7 7 7
1928 — 40% 7 7 7 7 7 7 7 7 7 7 7 7
1929 — 65% 7 7 7 7 7 7 7 7 7 7 7 7

successful operation of the company was primarily to able management. J. A. Joy acted as president from. 1910 to 1928, and thereafter acted as chairman of the board, vested under the by-laws with the full powers “usually vested in the office of president of a corporation.” J. A. Joy and Robinson have been directors since 1910. Together they own or control approximately 72% of'the stock; the remainder, save that owned by complainants, is owned by 12 persons. In the conduct of the business of the corporation, from its inception, it became a fixed custom for J. A. Joy and Eobinson to have general supervision and management of the business and affairs of the company and to determine and act upon all questions of policy relating to said business, at informal meetings and without action by the board of directors. In later years defendant Abbott acted with them.. From the beginning J. A. Joy and Eobinson, with the knoivledge and acquiescence of the other directors, determined the amounts that should be paid to individuals for services rendered to the company, although it is clear that a practice prevailed of not letting one employee know what the others were getting, and this practice prevailed as to fixed salaries as well as bonuses. At the time of the trial Eobinson was vice president of the Illinois Steel Company and had charge of the works of the company at South Chicago, Joliet, North Chicago and Milwaukee, which employed approximately 15,000 men. J. A. Joy had been, prior to his connection with the defendant corporation, a successful business man. On October 21, 1924, the bylaws of the defendant corporation were amended, so as to provide as follows :

“The Board of Directors shall appoint an Executive Committee consisting of the General Manager of the company and two other members of the Board of Directors. The General Manager shall be Chairman of the Executive Committee. Two members of the Executive Committee shall constitute a quorum. The duties of the Executive Committee shall consist of (1) passing on all loans (2) the purchase of all securities (3) the authorization of all contracts, all at times when the Board of Directors are not in session.”

J. A. Joy, Eobinson and Abbott were then appointed the members of the said committee and they acted as such until December 31, 1929. Abbott, Cheney and Henderson, against whom the decree has been entered, commenced service with the corporation in 1910, 1916 and 1919, respectively. Each was employed by J. A. Joy, the president, under an oral contract to perform services as directed by the latter in return for the payment of a stated salary. As none of the three held any official position with the company at the inception of his employment, the services to be then performed were necessarily unofficial in their character. The compensation of each was increased from time to time in accordance with his increasing responsibilities and activities. As officers of the company were advanced, retired, or discontinued connection with the company, Abbott, Cheney and Henderson were elected to various offices. Abbott became an officer in 1912, and a director in 1920. Cheney became an officer in 1920, and a director in 1922. Henderson became an officer in 1923, and a director in January, 1928. Abbott, about the end of 1922, demanded an increase in salary as general manager of the company, and J. A. Joy and Robinson, after giving full consideration to the question, came to the conclusion that instead of giving Abbott a raise in salary it would be better to “grant him an increase in the shape of extra compensation by means of a bonus, dependent, of course, upon his delivering; in other words, making profits,” so that “before he could receive the bonus he would have to produce,” and it was agreed that Abbott, in addition to his fixed salary, should be given ‘ ‘ a percentage of the profits” in the shape of a bonus. J. A. Joy then authorized a bonus compensation to be paid Abbott for the years 1921 and 1922. It further'appears that at the end of every year a question arose as to the compensation to be paid to the heads of departments, and in 1922 J. A. Joy, Robinson and Abbott, after numerous conferences upon the subject, adopted a plan of compensation for the heads of the departments under which each head was to receive a minimum fixed salary and in addition a per cent of the net profits of the business. Because of the growth of the business and the increasing worth and responsibilities of the heads of the departments, and their continual demands for higher salaries, it was concluded that such plan of compensation was advisable; that it was preferable to salary increases because it avoided an increase in fixed liabilities and created in the department heads an incentive for economy in operation, thereby increasing the profits. Robinson testified: “As to the manner in which the compensation was paid to the several employees of the company, I might say that I was the originator of the bonus plan that is in effect, . . . I think since 1922, ... I have always been a great believer in the question of bonus as a stimulation, an incentive. In other words, I have always been a great believer that in any enterprise a division of profits is the proper method rather than fixed salaries, and I presented this question of bonus plan to Mr. J. A. Joy. I had some difficulty in selling Mr. J. A. Joy the idea, but finally he agreed that a bonus plan as I had outlined would be a valuable thing.” At a meeting in January, 1923, Robinson, at the direction of the president, J. A. Joy, explained the plan to the department heads, and Abbott then notified each one separately of the salary and the per cent of the net profits he was to receive under the plan, which applied to six department heads, including Abbott, Cheney and Henderson. Only two of the six were directors, and three held no official positions with the company. Some of the department heads were not in favor of the plan because it limited the amount of the fixed salary, but all finally accepted it and thereafter performed services under the plan. In December, 1927, the plan was extended to include three additional department heads, none of whom was a director or officer. In the same year an additional bonus of $1,000 was paid to 11 employees, only three of whom were participants in the other bonus plan. This last bonus was authorized by the executive committee for the reason that a number of the 11 employees had been approached by rival companies and it was concluded that it would be exceedingly harmful to the business of the company to have its excellent organization disrupted. Robinson testified that this additional bonus was paid “to keep up the morale of the organization.” No action was ever taken by the board of directors in reference to this payment of compensation. With the exception of resolutions relating to the Christmas bonuses, which are hereafter referred to, no resolution was ever passed by the board of directors in reference to payment of compensation to anyone connected with the company for services rendered to it with the exception that the board did pass a resolution pertaining to the compensation of J. A. Joy for the performance of his services as president and chairman of the board of directors. It is clear that J. A. Joy and Robinson handled all such matters, and their action in regard to the same was acquiesced in by the directors.

We are satisfied, from the evidence, that the amount of total compensation, including fixed salary and bonus percentage compensation paid Abbott, Cheney and Henderson, was paid solely for the rendition of services that pertained to the business or commercial activities of the company and that were outside the scope of their official duties, and that such services were accepted by the corporation upon the understanding that the total compensation was to be paid, and the undisputed evidence shows that no more was paid than the reasonable value of the services that were rendered. We are further satisfied that all of the directors of the company, including the complainant C. H. Joy, knew that each of the department heads of the company was being paid for Ms services by a fixed salary and a bonus percentage compensation. C. H. Joy, the principal complainant, was a director and stockholder of the company from the time it was reorganized, in 1910, until January, 1930. He seems to have been present at practically all of the meetings of the directors and stockholders. He was present at all meetings of directors from 1920 to 1929, at which resolutions as to the payments of the Christmas bonus to employees were passed, and the record shows that he always voted in favor of such resolutions. Each of these resolutions specifically provided that the Christmas bonus was for employees “not noio receiving other bonus or commission.” He was present at all annual meetings of stockholders from 1921 to 1929, inclusive, and at each voted in favor of a resolution ratifying, approving and confirming all of the acts of the officers and directors of the company for the preceding year. Abbott and Eobinson testified that at a meeting of the directors in December, 1927, Eobinson, at C. II. Joy’s request, explained the plan of the bonus compensation, under which the department heads had been paid since 1923, and stated that they were extending the plan so as to take in three additional department heads. They also testified that J. A. Joy was not present at that meeting. Complainants’ witness Flanigan testified that bonus compensation was not discussed at that meeting, but when his entire testimony is considered, it seems plain to us that he did not successfully refute the testimony of Eobinson and Abbott. It appears that Flanigan was discharged from the employ of the defendant corporation, in 1928 and that he then became president of a competitor of that corporation and was president of the competitor at the time that he testified. Eobinson also testified that the bonus plan was discussed at various meetings of the directors and that all of the directors knew that the plan was in effect. It is noteworthy that neither C. H. Joy nor any of the complainants saw fit to testify in the case, and there is force in the contention of defendants that as the bill is based upon the theory that the bonus payments were made without their knowledge, that complainants, especially C. H. Joy, should have testified that they had no knowledge of the bonus payments or the bonus plan, if such were the fact. Abbott had been in the employ of the defendant corporation since 1910. In 1921 and 1922 he was general manager and sales manager. From January, 1923, to January, 1930, he was general sales manager and as such had supervision of the operation of the business and the management of all of the departments. He devoted all of his time to the business of the company, and the uncontradicted evidence shows thát he was a very valuable man to it. Cheney entered the employ of the company in 1916 and was sales manager for the Pacific Division during the years 1920 to 1922, inclusive. He then became the general manager of the company and continued in such position until January, 1930. He devoted all of his time to the business of the company and was in charge of all sales activities. In 1922 he had the supervision of 42 salesmen as well as other employees, and at the end of 1929 he was in charge of 125 salesmen, located in 56 branch offices of the company. The company was represented by its sales department in nearly every important country in the world. Its sales volume increased from $1,537,009 in 1923 to $3,036,101 in 1929. Henderson was employed by the company in 1919. In 1923 he was the office manager and also had charge of the purchasing department. In 1928 he became the manager of the roll manufacturing department, and in 1929 he became the manager of the manufacturing department, and the many products of the company were then manufactured under his supervision. He spent all of his time in his departmental duties and had supervision over 150 employees. That Abbott, Cheney and Henderson were able and efficient employees is abundantly proven by the evidence. The net profits of the company increased from $238,449 in 1923 to $612,157 in 1929. Neither J. A. Joy nor Robinson received any of the bonus payments complained of, and as they own 72% of the stock, they, in effect, paid 72% of all moneys paid out in the form of bonuses, and any claim that these two men were guilty of any fraud or wilful misappropriation of the funds of the company in connection with the bonus payments, is without the slightest merit. J. A. Joy stated: “If I could fix a bonus that would be dependent on the prosperity and the business and get their (department heads) more hearty cooperation and better work, I felt it was to the interest of Ditto to use it that way, and it'was, too.” Robinson testified: “I was not getting any of this money. Why would I advocate spending this money to give it to some other fellow! Simply by interesting the boys, the stockholders, including myself, would get more money, and that is the theory of any bonus plan, and it has been, in my judgment, really during the last seven or eight or nine years, one reason why these boys worked their heads off . . . .” In Church v. Harnit, 35 F. (2d) 499, the court, in referring to bonus payments therein involved, and which were in addition to fixed salaries, said (p. 501): “There- is nothing illegal or against public policy in such a contract.” In Putnam v. Juvenile Shoe Corp., 307 Mo. 74, 90, the court said, in reference to the bonus payments therein involved:

‘ ‘ The practice has become common among large employers and tends to stimulate loyalty, faithfulness, activity and energy in employees and gives them a real interest in the business of the employer beyond the extent of such qualities reasonably to be expected where a definite and unfluctuating compensation is all such employees have the right to anticipate. The natural tendency of a bonus, the amount of which is contingent upon profits, is to build up that quality known as esprit de corps. It tends to produce profits beyond what may otherwise be expected.”

The testimony shows that the defendant corporation would have had to raise the salaries of department heads materially if the bonus plan had not been adopted. That such plan proved of great benefit to the company and its stockholders is evident from the large dividends that have been paid the latter.

Complainants, in their bill, do not seek to recover-the amounts of fixed salaries paid Abbott, Cheney and Henderson. They contend, as we understand their argument, that the fixed salary and the bonus payments represent different types of service, and they argue that as Abbott, Cheney and Henderson were drawing substantial fixed annual salaries the bonus must be treated as a mere gratuity; that under the bylaws of the corporation only the board of directors could make a legal contract of employment with the department heads. As we have heretofore stated, it is clear from the evidence that the bonus percentage compensation to the department heads constituted compensation for the same character of services as that for which the fixed salary was paid.

Complainants contend that “an officer-director, as such cannot legally have compensation without antecedent action of the board of directors,” and they cite numerous authorities in support of this proposition. It is the law that for official services performed by director-officers of a corporation a precedent by-law or resolution authorizing the payment of compensation is required, but this principle of law has no application to the facts of this case as we find them.

Complainants’ major contention is that a corporation cannot pay compensation to directors or director-officers. except upon an antecedent resolution of the board of directors or by a by-law provision. While, as we have heretofore stated, such rule of law applies to compensation paid for the performance of official duties incident to the official position of director or officer, it is also the law that such rule does not apply to compensation paid for services rendered by a director or director-officer outside of the scope of duties imposed upon him by his office.

“This exception, if it may be called such, is now so well established as to be a rule of similar dignity with the general doctrine stated at the beginning of this chapter, and, according to the great weight of authority, if a director or other officer renders services clearly outside of his duty as such, at the request of the corporation or board of directors, with the understanding that they are to be paid for, the law will imply a promise to pay what they are reasonably worth, and in such cases it is not necessary that there be a special agreement to pay, or precedent resolutions, charter provisions, and the like, providing for compensation. ’ ’ (Fletcher Cyclopedia Corporations, Vol. 4, Sec. 2739.)

In Stevens v. Industrial Com., 346 Ill. 495, 498, the court, after stating the rule that directors may not receive compensation for the performance of their duties as directors or officers unless the compensation is authorized by an antecedent by-law or resolution, says:

Such rule ‘ ‘ does not apply to a director or officer who has performed necessary, services entirely outside the scope of his duties as a director or officer, at the instance of the officers of the corporation having general authority over the affairs of the corporation, under an express promise of payment for such services or under such circumstances as raise an implied promise to pay for them.” (Citing cases.)

(See, also, Pence v. The West Side Hospital of Chicago, 265 Ill. App. 560; Cheeney v. L. B. & M. R. W. Co., 68 Ill. 570, 575; Gridley v. L. B. & M. Ry. Co., 71 Ill. 200, 204; Chicago Macaroni Mfg. Co. v. Boggiano, 202 Ill. 312.) The contracts of employment of Abbott, Cheney and Henderson were made in Illinois and the services performed there, and therefore the law of Illinois is determinative of the question of compensation thereunder. (Goodin v. Dixie-Portland Cement Co., 79 W. Va. 83.) However, the Illinois rule is the same as the West Virginia rule. (See Watts v. West Virginia Southern R. R. Co., 48 W. Va. 262.) The Illinois rule is the same as that followed in the United States Supreme Court. (See Fitzgerald & Mallory Construction Co. v. Fitzgerald, 137 U. S. 98.) It will be noted that in the instant case there was the same authorization for the bonus payments as there was for the fixed salary payments, which complainants do not seek to have returned.

The contention of complainants that under the bylaws of the company the board óf directors were vested with the exclusive authority to act upon compensation payments to the department heads of the company, is without merit. Undoubtedly, the board of directors, under the by-laws, had the power and authority to employ and fix the compensation of the department heads, but such power was not exclusive. Article VI, section 2, of the by-laws (in force until 1928) provides:

‘ ‘ The president . . . shall have the general powers and duties of supervision and management usually vested in the office of a president of a corporation. ’ ’

In 1920, Article VI, section 1, of the by-laws, was amended so as to provide as follows:

“The president or Board of Directors shall have power to appoint such other officers as may be deemed necessary, who shall have such authority and shall perform such duties as may from time to time be prescribed by the Board. Officers elected by. the Board shall hold office until the next annual meeting of the Board of Directors, and until their successors are elected and qualify. All other officers, agents, and employees shall hold office during the pleasure of the Board or of the officer appointing them.” (Italics ours.)

Article VI, section 2 (in reference to the powers of the chairman of the board), as amended in 1928, provides :

“He shall have the general powers and duties of supervision and management of the business of the Corporation and its officers and agents, usually vested in the office of President of a Corporation, ...” It follows that J. A. Joy, president until 1928, and thereafter chairman of the board, as the chief executive officer, had general powers and duties of supervision and management over the business and affairs of the company. The amendment of 1920 expressly recognizes the authority of officers to appoint and remove agents and employees, and there is force in the contention of defendants that this amendment, by implication, at least, gave authority to such officers to fix compensation. We are of the opinion that under the provisions of the by-laws the president had express corporate authority to make contracts of employment, including the terms of compensation. In Arkadelphia Lumber Co. v. Asman, 85 Ark. 568, in which the by-law provisions are substantially the same as are here present, the court so holds. It seems to be undisputed that J. A. Joy, together with T. W. Robinson, always handled the business affairs and determined the policies of the company; that J. A. Joy always handled all matters pertaining to employment and the compensation to be paid for the same. Complainants’ witness Flanigan, who was a director from January 22, 1919, to August 3, 1928, testified that in all of the directors’ meetings that he attended “there was practically nothing pertaining to business discussed. . . . There is nothing that I can recall that was ever discussed at directors’ meetings pertaining to our business, any further than to pass the dividend that had already been decided on by some of the officials somewhere else. At none of those meetings was there any discussion as to the amounts to be paid for the services of any of those connected with Ditto, Incorporated. That is not a recollection. It is a fact. There was no discussion of compensation paid to anybody at any directors’ meetings that I attended. That is true of every directors’ meeting that I ever attended. . . . The administration of the business was left to Mr. J oy and Mr. Robinson. It was left to them; it was their business. They directed the affairs of the company. ... I did not care to disrupt any directors ’ meetings by asking questions as to whát Mr. J oy and Mr. Robinson had done. I had complete confidence in both gentlemen, and I did not care to question their actions in any way.” There is nothing in the record to show that any objection was ever made by any director or stockholder as to the manner of handling the affairs of the corporation by J. A. Joy or Robinson, or by the executive committee. The master, in his report, states: “There is no authority in law authorizing an executive officer to make employment contracts with other officers or directors.” In Chicago Macaroni Mfg. Co. v. Boggiano, supra, the court says (pp. 317-8):

“While the principle is well established that in order to entitle an officer of a private corporation to receive compensation for the performance of the duties of his office it is necessary such compensation should have been authorized by the board of directors or by the by-laws of the company, it is also the rule that for the performance of duties or services outside of and apart from those imposed upon him by virtue of his office, such officer may, if such extraordinary services were rendered at the request or with the acquiescence of the corporation, recover upon a quantum, meruit. (Bock- ford, Rock Island and St. Louis Railroad Co. v. Sage, 65 Ill. 328; Cheeney v. Lafayette, Bloomington and Mississippi Railway Co., 68 id. 570; Gridley v. Lafayette, Bloomington and Mississippi Railway Co., 71 id. 200; 21 Am. & Eng. Ency. of Law, — 2d ed. — 909.) ” In Stevens v. Industrial Com., supra, the court said (p. 498) :

“It is well established that the directors of a corporation cannot receive compensation for the performance of their duty as directors or as officers of the corporation unless compensation is provided for by a bylaw or resolution of the board of directors before the services are rendered. This rule applies to a director who is the president, vice-president, secretary or treasurer of a corporation, but it does not apply to a director or officer who has performed necessary services entirely outside .the scope of his duties as a director or officer, at the instance of the officers of'the corporation having general authority over the affairs of the corporation, under an express promise of payment for such services or under such circumstances as raise an implied promise to pay for them. Rockford, Rock Island and St. Louis Railroad Co. v. Sage, 65 Ill. 328; Cheeney v. Lafayette, Bloomington and Mississippi Railway Co., 68 id. 570; Holder v. Lafayette Bloomington and Mississippi Railway Co., 71 id. 106; Chicago Macaroni Co. v. Boggiano, 202 id. 312; Pew v. First Nat. Bank, 130 Mass. 391; Fitzgerald & Mallory Construction Co. v. Fitzgerald, 137 U. S. 98.” (See, also, Pence v. West Side Hospital of Chicago, supra, pp. ,562-3.)

Complainants have devoted a considerable portion of their brief to the contention that the record shows secrecy and concealment in the matter of the payments of the bonus compensation and that such'alleged conduct imports fraud. We would be forced to extend this opinion to an unwarranted length if we attempted to analyze and answer the argument of complainants in reference to this contention. We again reiterate that there is no reasonable foundation for the claim that there was anything fraudulent in the payments of the bonus compensation to Abbott, Cheney and Henderson. The cases cited have no application to the facts of this case. As we have heretofore stated, J. A. Joy and Robinson, as the owners of 72% of the stock, in effect paid 72% of such compensation.

Complainants now admit that C. H. Joy was advised of the bonus plan in December, 1927, and that he did not bring the instant proceedings until 27 months thereafter, and defendants contend that such delay constituted laches and barred his right to relief. In the view that we have taken of this case we do not deem it necessary to pass upon this point. We feel impelled, however, to state that the bill was filed on March 19, 1930, which was about five months after the debacle in the fall of 1929, at which time the great depression started. C. H. Joy did not ask the board of directors to take action in reference to the recovery of the bonus payments in question until January 22, 1930. As we read the record in this case the impression grows that the claim in the instant bill is an aftermath and an afterthought of the great depression.

It appears that at a special meeting of the stockholders on March 24,1930, all of the compensation that had been paid Abbott, Cheney and Henderson was ratified and approved, and defendants contend that such action of the stockholders is conclusive and binding upon complainants, but we do not deem it necessary to pass upon' this contention nor the cases cited in support of it.

Under the facts, as we find them, it would be highly inequitable to require Abbott, Cheney and Henderson to pay to complainants any part of the compensation earned by such defendants for valuable services rendered by them to the corporation over a period of years. The corporation, as well as the complainants, has been greatly benefited by such services, which, the undisputed evidence shows, materially contributed to the extraordinary profits of the business during the period in question.

Our conclusion is that the decree as to Abbott, Cheney and Henderson should be reversed, but as the instant appeal (Appellate Court Gen. No. 36,517) is prayed solely by Guy H. Abbott, the order will be that the decree is reversed as to him and the cause remanded with directions to dismiss complainants’ bill as to him for want of equity.

Reversed and remanded with directions.

Sullivan, P. J., and Gridley, J., concur.


author: Mr. Presiding Justice Matchett

text:
    Richard Schneider, Appellee, v. Abe Smith et al., Appellees. A. M. Friedman, Appellant, v. Abe Smith et al., Appellees.
    Gen. No. 36,692.

      Opinion filed July 5, 1933.
    Rehearing denied July 17, 1933.
    Maurice L. Davis, for appellant.
    Harry A. Carlson and Cheney & Peterson, for appellee.
   Mr. Presiding Justice Matchett

delivered the opinion of the court.

On September 24, 1931, complainant Friedman filed his bill against Abe Smith and Sadie, his wife, Samuel Greenberg and Sadie Greenberg, his wife, Home Bank and Trust Company, a corporation, as trustee under a trust deed executed by the Smiths and the Green-bergs to secure an issue of bonds executed against them on February 23, 1927, to the amount of $105,000 and VUnknown Owners.”

The bill alleged .that the trustee bank was in process of liquidation and without capacity to prosecute a prior suit begun by it on August 24, 1931, in the superior court of Cook county to foreclose the same trust deed.

Peter L. Evans, as successor in trust, appeared and filed a plea in which he set up that one Midowicz had been appointed receiver of the Home Bank and Trust Company by the auditor of public accounts of the State of Illinois on June 20, 1932; that Midowicz thereafter, on behalf of the Home Bank and Trust Company, as trustee under the trust deed sought to be foreclosed, resigned the trust imposed on the said Home Bank and Trust Company, and that thereupon Evans succeeded the Home Bank and Trust Company as trustee under the trust deed; that he had accepted the trust and was acting as such trustee; that on August 24, 1931, the Home Bank and Trust Company exhibited its bill of complaint in the superior court of Cook county on behalf of and as the representative of complainant and of all the persons holding and owning bonds described in and secured by the trust deed to foreclose the lien of the trust deed; that the bill prayed for relief in the same matters and to the same effect as complainant Friedman prayed by his present bill; that the bill involved the same parties and subject-matter and trust deed involved in the present proceeding and was then remaining pending of record, undetermined and undismissed; that complainant was a party thereto through his duly authorized and appointed and acting representative, the Home Bank and Trust Company, as trustee; “that this defendant having accepted the said trust as hereinbefore stated, has or will have secured by the time a hearing is had upon this plea, the substitution of himself as a party complainant in lieu of and in the place and stead of said Home Bank and Trust Company, as trustee complainant in said superior court cause general No. 542056, and will thereupon proceed with the consummation of said proceedings so instituted by said Home Bank and Trust Company, as trustee as aforesaid. ’ ’

The plea further stated that all these things were averred to be true and to be pleaded to the whole of the amended and supplemental bill of complaint and prayed judgment of the court as to whether he ought to be compelled to make any answer to either the bill of complaint or amended and supplemental bill of complaint and prayed that the same might be dismissed or stayed.

The answer of the Home Bank and Trust Company as trustee to the amended and supplemental bill was by leave withdrawn and the plea set down for hearing, upon which the plea was sustained, and complainant electing to stand by his bill, the same was dismissed for want of equity. Complainant appeals from that order.

It is contended in the first place that the plea is defective in that it fails to state that Peter L. Evans is a party to the prior suit. It is pointed out in this respect that the plea will be construed most strongly against the pleader, and so construing it, we think it doubtful whether the plea can be held to allege that Peter L. Evans is a party to the prior suit. Nevertheless, we think that plea was not in substance defective for the reason urged. The reason for the rule which forbids the prosecution of two suits at the same time in courts of the same jurisdiction concerning the same subject-matter and against the same parties is that a person may not be twice vexed by the same action, and it is therefore ordinarily essential that such plea should contain an averment that the pleader is a party to the first action. However, like most general rules, this one is subject to exceptions. A successor in trust although not made a party to the litigation has a contingent interest in it, being in privity with the trustee and being bound by litigation to which the trustee is a party. The successor in trust is a proper, although not a necessary, party. Whether he is a formal party or not, he is a party in interest bound by the results of the litigation, and therefore may properly file a plea of this kind and nature. Complainant cites Story’s Equity Pleadings (5th ed.) sec. 665, p. 679, where the general rule is stated. Section 738 of the same work points out that the rule is not invariable, and in 1 Encyclopedia of Pleading and Practice 757, the law applicable is thus stated: ‘ ‘ The pendency of a suit will not abate one subsequently brought unless there be a substantial identity of parties. The plaintiffs, at least, in each suit must be the same.

“There are, however, several well established exceptions to this rule, as in qui tarn actions for penalties, actions for breach of official bonds, in certain cases of set-off and counterclaim, and in suits by one of a class or by different plaintiffs in privity of title.” This is the rule in Illinois. McConnell v. Stettinius, 2 Gilman 707; Hass v. Righeimer, 220 Ill. 193.

The plea in this respect was not, we hold, substantially defective.

In the second place, it is urged that as the trustee defendant answered the original bill and since the successor in trust was bound by that answer of the trustee, the successor in trust could not file a plea, while the answer of the predecessor trustee was allowed to stand. To this point a number of authorities are cited, among them Straley v. House of Good Shepherd, 281 Ill. 604. Here, again, we think complainant relies upon a general rule which is not applicable to the facts appearing on this record. The plea of the successor in trust was filed in response to a rule, leave having been given to complainant to file an amended and supplemental bill. The trustee answered this amended and supplemental bill, but this answer was by leave of court withdrawn. This was proper practice. 21 Corpus Juris 486, sec. 568; Stephens v. St. Louis Union Trust Co., 260 Ill. 364. The case as made out by the amended and supplemental bill differed materially from the case as stated in the original bill which the trustee answered, in that it stated the disqualification of one party defendant and added other defendants. It is conceded that where the bill as amended varies materially from the original bill, an answer to the original bill would not overrule a plea. In the Straley case the pleas and answer were identical in substance, and for that reason it was held that the answer overruled the plea. At the most, complainant would have had the right to read the answer to counterplead the pleas to the amended and supplemental bill. Daniels, Chancery Pleading and Practice (6th Am. ed.) sec. 682.

We find no error in the record and the decree is therefore affirmed.

Affirmed.

0’Connor and McSubely, JJ., concur.


author: Mr. Justice O’Connor

text:
    Chicago Title and Trust Company, Appellee, v. Paul D. Jensen et al. Appeal of Paul D. Jensen, Appellant.
    Gen. No. 36,660.

      Opinion filed July 5, 1933.
    Harry D. Irwin, for appellant; Elmer F. Deneke, of counsel.
    SONNENSCHEIN, BeRKSON, LaUTMANN, LeVINSON & Morse, for appellee; Isaac E. Ferguson and Jesse H. Brown, of counsel.
   Mr. Justice O’Connor

delivered the opinion of the court.

The defendant, Paul D. Jensen, prosecutes this appeal to reverse a decree of the circuit court of Cook county, entered in a foreclosure suit.

In his brief defendant states that “The only question presented to this Court for decision on this appeal by the defendant, Paul D. Jensen, is whether the transaction between Baer, Eisendrath and Company and Jensen was usurious.”

The record discloses that in March, 1927, defendant owned a piece of real estate on the north side of Chicago on which he desired to construct a building, and to obtain sufficient funds he, on March 7, 1927, applied to Baer, Eisendrath and Company for a loan of $140,000. The application provided that if the loan was made it should be repaid in specifically designated installments and that it would draw interest from June 1, 1927, at the rate of seven per cent per annum. The application stated that the value of the ground was $50,000 and the building when completed would be worth $165,000, making a total of $205,000. (?) It further provided that Jensen would execute his trust deed, which would be guaranteed to be a first lien on the premises; that the proceeds of the loan should be held by Baer, Eisendrath and Company and be paid out by it as the building progressed to the materialmen, contractors, etc., who furnished labor and material on the building and who would furnish waivers of liens. It further provided that Baer, Eisendrath and Company might at all times hold in its possession sufficient funds in the loan to complete the building free of liens. And in consideration of the services performed by Baer, Eisendrath and Company, Jensen agreed to pay a commission or charge of six per cent of the amount of the loan. It is stated that these services were in negotiating the loan, making examinations during the progress of the construQtion of the building, and in disbursing the proceeds of the loan to the contractors and materialmen ; and that this six per cent might be deducted from the proceeds of the loan upon acceptance of the application.

The application was accepted by Baer, Eisendrath and Company, and on March 15,1927, Jensen executed 201 bonds aggregating $140,000, and a trust deed conveying the premises in question to the Chicago Title and Trust Company, trustee. March 12, 1927, Baer, Eisendrath and Company credited Jensen’s account with the $140,000 and charged against it six per cent commission, or $8,400. The bonds were not ready for sale until April 29, 1927, and thereafter Baer, Eisendrath and .Company began to sell the bonds to the public. During the month of May, 1927, it sold $27,400 of the bonds to 19 different customers; June, $34,100 to 38 customers; July, $25,500 to 16 customers; August, $21,500 to 16 customers; September, $11,000 to 4 customers; October, $14,000 to 9 customers; November, $4,000 to 6 customers; December, the remaining $2,500 to 1 customer.

The evidence further shows that during this period Baer, Eisendrath and Company was, from time to time, making payments toward the construction of the building as follows: By the last of May it had paid out $10,208.70; at the end of June it had paid out more than $66,000; at the end of July more than $81,000; at the end of August more than $112,000; at the end of September more than $121,000; October more than $132,000; and November more than $134,000. All of the bonds were sold and there is no complaint that the proceeds were not properly disbursed, except that Baer, Eisendrath and Company was not entitled to charge the commission of $8,400 and in addition require defendant, Jensen, to pay seven per cent on the face of the bonds; that this commission and seven per cent interest which defendant was required to pay was usurious, because the $140,000 was the money of Baer, Eisendrath and Company. Of course, if the loan was made by Baer, Eisendrath and Company from its own funds, it could not charge a commi .on of six per cent and in addition seven per cent on u j face of the bonds. This is forbidden by our statute on interest.

The question whether a loan is usurious is a question of fact, and in determining that question equity will look to the substance of the transaction and disregard the form, and will not permit parties to evade the statute by any scheme or expedient. Lehmann v, Schimeall, 195 Ill. App. 511.

It was admitted that there was a default in the payment of some of the bonds and taxes, but defendant’s contention is that if he were credited with all he was entitled to, by eliminating usury, there would háve been no default and the bill should be dismissed. It appears that during the construction of the building Baer, Eisendrath and Company, at times paid out more money than it had received from the sale of the bonds, and defendant contends that this is evidence sustaining his position that Baer, Eisendrath and Company was loaning its own funds. We are unable to agree with this contention. We think it is clear from a consideration of all the facts in the case, that Jensen and Baer, Eisendrath and Company, both understood, as disclosed by Jensen’s application and what was done by the parties, that Baer, Eisendrath and Company would sell the bonds to the public and make payments to the contractors and materialmen as the bills accrued, even though there were not enough funds, at the several times, to meet all the bills, because it is clear that both parties intended all the bonds should be sold and the proceeds used to pay the cost of the building, and this is what was done. Moreover, the six per cent or $8,400 was not paid solely as a commission for loaning the money, because Baer, Eisendrath and Company was required under its agreement with Jensen to pay all bills as the work progressed, to see that waivers of mechanics’ liens were obtained, and to sell the bonds. Obviously it should be paid for this work.

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

Decree affirmed.

Matchett, P. J., and McSurely, J., concur.


text:
    Robert Honore Brown, for Use of Clarence F. Buck as Receiver of Calumet National Bank of Chicago, Appellant, v. First National Bank of Chicago, Appellee.
    Gen. No. 36,663.
    Opinion filed July 5, 1933.
    Rehearing denied July 17, 1933.
    George G. King, for appellant Clarence F. Buck; Casper M. Murphy, of counsel.
    Amberg, Ott, Dahlin & Livingston, for appellee First National Bank of Chicago; Frank L. Paul and Robert P. Perkaus, of counsel.
   Mr. Justice O’Connor

delivered the opinion of the court.

Clarence F. Buck, as receiver of the Calumet National Bank of Chicago, obtained a judgment by confession against Robert H. Brown for $1,767.82, and after the return of an execution unsatisfied brought garnishment against the First National Bank of Chicago. At the close of the plaintiff’s evidence the garnishee was discharged and Buck, the receiver, appeals.

The garnishee in its answer said that it had no property belonging to Brown; that it had in its banking department a deposit “in a joint account in the name of R. H. or Rose Brown,” a sum sufficient to satisfy the judgment against Brown; that it had been notified that part of, the fund on deposit was claimed to belong to Brown as receiver in five specified suits, four of which were pending in the superior court of Cook county and one in the circuit court of Cook county, and specifying the amount of money claimed in each case, the total being $1,907.36, and that the balance of the deposit was claimed to be the property of Rose Brown.

Plaintiff offered evidence to the effect that the account in the bank of “R. H. or Rose Brown” showed a balance of $3,342.65, and that the agreement made with the bank was “that all deposits in this account or any part thereof, or any interest or dividend thereon, may be paid to any one of the undersigned, whether the other or others be living or not, on the receipt or acquittance of any of the undersigned.” This was signed by R. H. Brown and Rose Brown. At the conclusion of this evidence the court, on motion, discharged the garnishee and plaintiff appeals.

Plaintiff contends that the relation between R. H. Brown and Rose Brown, his wife, with the National Bank, the garnishee, was contractual and that under the terms of the. contract either B. H. Brown or Bose Brown was entitled to withdraw any or all of the fund. We think this contention must be sustained and that either B. H. Brown or Bose Brown could draw out all of the fund. Landretto v. First Trust & Savings Bank, 333 Ill. 442. But this fact would not warrant the conclusion that plaintiff was entitled to a judgment against the garnishee if part of the money on deposit belonged to B. H.. Brown, as receiver in the five cases mentioned, and part to Bose Brown, his wife. The only money ■that could be subject to the payment of the judgment against Brown would be his own money.

In the Landretto case, which was a divorce suit,' there was an account on deposit with the First Trust and Savings Bank of Chicago in the name of “Lizzie or Sam Landretto,” and any part or all of the account was payable to either. All of the money was drawn out by Sam, and it was contended that this did not relieve the bank from liability, but the contention was denied. The court there said (pp. 448-449): “Joint bank accounts are not uncommon. The question here presented is uncommon so far as precedents disclose.' The right to draw and the duty to pay checks against the account rests upon contract. It does not depend upon the ownership of the fund. No case like it has been cited and none has been found. It is elementary doctrine, often repeated, that the agreement of parties is the law governing their rights unless contrary to some rule of positive law or principle of public policy. When the Landrettos deposited the money they signed the agreement, without which the deposit would not have been accepted. They are bound by it as between themselves and between them and the bank. ’ ’

In the instant case the money involved was not withdrawn but is still in the bank and the question presented in the Landretto case is not at all similar to the question before us. In that case it was held that the contract between the bank and the Landrettos was binding “as between themselves and between them and the bank.” So, in the instant case, the contract between the Browns and the bank was binding between themselves and the bank, but that question is in no way involved here.

A garnishment proceeding brought on the law side of the court is a statutory proceeding and in its nature equitable. Byers v. Illinois Trust & Savings Bank, 146 Ill. App. 592; Obergfell v. Booth, 218 Ill. App. 492; see, also, especially secs. 13 and 24, Garnishment act, Cahill’s Statutes.

In Frerk v. Bayor, 220 Ill. App. 568 (abstract opinion), it appears from the opinion filed in that case that plaintiff had a judgment against William A. Bay or and a bank was garnisheed in which there was a deposit in the name of William A. Bay or and Grace E. Bay or, husband and wife, and it was sought to reach this account by garnishment to satisfy a judgment against the husband. The evidence showed that the money in the bank was the exclusive property of the wife and it was held that the account could not be garnisheed to satisfy a judgment obtained against her husband, citing Kean v. Kean, 172 Ill. App. 183; May v. Baker, 15 Ill. 89, and other cases.

In the instant case when plaintiff proved that the account in the bank was in the name of ft. H. or Bose Brown, he did not make out a prima facie case that the money belonged to B. H. Brown, the judgment debtor, and this being all the evidence offered, the judgment discharging the garnishee must be affirmed.

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

Judgment affirmed.

Hatchett, P. J., and HcSurely, J., concur.