text:
    Matson B. Hill and Jean Patterson Hill, Appellees, v. 1550 Hinman Avenue Building Corporation et al., Defendants. 1550 Hinman Avenue Building Corporation et al., Appellants.
    Gen. No. 37,896.

      Opinion filed November 5, 1935.
    Rehearing denied and additional opinion filed November 22, 1935.
    McG-ilvray, Fames, Vaughan & Tilley, of Chicago, for appellants; Franklin E. Vaughan, of counsel.
    Poppenhusen, Johnston, Thompson & Cole, of Chicago, for appellees; James W. Hyde, Anan Raymond and Henry Gf. O’Donnell, all of Chicago, of counsel.
   Mr. Presiding Justice Scanlan

delivered the opinion of the court.

Plaintiffs filed their complaint to set aside as clouds upon their title to certain premises a 9.9-year lease, certain assignments thereof, and trust deeds, judgments and mechanics’ lien claims derived from or claimed through the lease, and to obtain .other relief under the lease. 1550 Himrian Avenue Building Corporation (hereinafter also called Corporation), Frank W. Cauley and Rosalie Hill Cauley, defendants, appeal from an order entered denying their motion to dismiss the complaint and from the decree entered in the case. The complaint alleges that plaintiffs are the owners in fee simple of certain premises (describing same) and in possession thereof; that on May 12, 1926, they and Libbie B. Hill, the then owners of the premises and in possession thereof, leased the same to Morris E. Feiwell, defendant, and the lease was duly recorded; that on November 28, 1928, Feiwell assigned the lease to Frank W. Cauley, which assignment was duly recorded; that on November 30, 1928, defendants Frank W. Cauley and Rosalie Hill Cauley, his wife, executed a trust deed to Chicago Title and Trust Company, as trustee, mortgaging their interest under the lease to secure the payment of three notes (describing them), which deed was duly recorded and has never been released, canceled or satisfied of record; that on February 11, 1929, Cauley assigned the lease to defendant Corporation, which assignment was duly recorded; that on May 13, 1929, defendant Corporation conveyed to Chicago Title and Trust Company, as trustee, by its trust deed or mortgage, the right and interest of the Lessee under and by virtue of the said . . . Lease,” to secure two certain notes, which instrument was recorded and has never been released or canceled of record; that on May 14, 1929, defendant Corporation executed and delivered its trust deed or mortgage to Chicago" Title and Trust Company, mortgaging the interest of the lessee under the lease, to secure the indebtedness of the grantor in the principal sum of $51,308.34, which trust deed was made subject to the trust deed executed May 13, 1929, and which second trust deed was recorded and has never been released or canceled of record. The complaint recites certain covenants in the lease That obligated the lessee to construct, before June 1,1931, at Ms own expense, a building not less than 10 stories in height and to cost not less than $125,000, to pay rent, to pay taxes, and to deposit with the Northern Trust Company certain funds to secure the lessors in the performance of the contract by the lessee; alleges the default of defendants in the performance of the said covenants; alleges that defendants commenced the construction of the building and that when the work had progressed to a point where the excavations and foundations of the building were nearly completed, they abandoned the premises and the work, in September or October, 1929; alleges the appearance of record of certain mechanics’ lien claims and judgments which were derived from and constituted liens against only the leasehold interest; alleges defaults in the payment of instalments of rent due under the lease; alleges that on March 6, 1934, plaintiffs gave to defendants a notice in writing of said defaults, and that after the defaults had continued for 60 days after service of the notice of default it became lawful for plaintiffs to declare the term of the lease ended, to re-enter the premises and the buildings thereon, to expel all occupants, and to repossess the buildings thereon “without such reentry and repossession working a forfeiture of the rents to he paid and the covenants of said lease to he performed during the term of said lease”; that about May 8, 1934, plaintiffs declared the lease and the term demised ended, re-entered the premises and put out its occupants, including defendants, and repossessed the premises, and now possess them; that by reason of the defaults plaintiffs are now the absolute owners in fee simple of the real estate, etc., and in possession of the same, free and clear of any and all right, title, interest, lien, claim, demand, incumbrance or cloud on account of, in connection with, or arising from the lease, and any. mortgages, conveyances, deeds of trust, claims of lien or other instruments, whether appearing of record, or otherwise, in any manner derived from or claimed by virtue of the lease or arising by any act of defendants Feiwell, Cauley or Corporation, or any person claiming through or under said defendants; that the amounts due plaintiffs as lessors are greatly in excess of the cash and market value of the securities now in the hands of defendant Northern Trust Company, “as Trustee of Securities under said . . . Lease,” and that plaintiffs are therefore entitled to have delivered to them all cash and securities on deposit with that company, which should be ordered to transfer and deliver to plaintiffs said cash and securities, to be applied by plaintiffs in partial reimbursement of the loss occasioned them by the defaults of said defendants in the performance of the terms and covenants of the lease; that notwithstanding the foregoing, the lease, assignments, trust deeds, claims for liens, judgments and interest of the directors and stockholders of defendant Corporation, “by reason of the same appearing of record . . . , are clouds upon the plaintiffs’ title in fee simple in and to said premises and tend to depreciate the value thereof; and ought, therefore, to be set aside, tobe declared mdl, void, terminated and at an end, and to be delivered up to be canceled under the direction of this Court,” and prays that defendants be required to answer; “that the plaintiffs be decreed to be the absolute owners of said real estate and appurtenances thereto free and clear of any and all claims or interest therein of the defendants hereto and entitled to possession thereof as against the defendants and each and all of them”; that the instruments appearing of record (describing them in detail) be set aside and declared null, void, terminated and at an end, as against plaintiffs, as a cloud on their absolute title in fee simple in and to said real estate and appurtenances, and that the same may be delivered up to be canceled under the direction of the court; that defendants be ordered to execute and deliver such quitclaim deeds, releases, etc., as should be necessary to remove from plaintiffs’ title any apparent right, title, etc., appearing of record, and that on their failure “to execute and deliver said instruments, that the court designate and appoint a commissioner for the purpose of executing and delivering the same; that the defendants and each of them and all persons, firms and corporations claiming by, through or under the said defendants be forever barred and enjoined from having, claiming or asserting any right, title, interest, lien, claim, demand, encumbrance or cloud in or to the said real estate and appurtenances or against the absolute title in fee simple and right of possession of the plaintiffs therein and thereto”; that the Northern Trust Company be directed to deliver all of the cash and securities remaining on deposit in its hands to plaintiffs, and that plaintiffs may have such other and further relief in the premises as may be equitable. The lease, dated May 12, 1926, is attached to the complaint and made a part thereof.

Defaults were taken against numerous defendants. Several defendants, including the original lessee, Feiwell, disclaimed. Chicago Title and Trust Company, the trustee under the several trust deeds, answered.

Defendants 1550 Hinman Avenue Building Corporation, Frank W. Cauley and Rosalie Hill Cauley (hereinafter called appellants), on June 15, 1934, filed the following motion:

“Motion to Dismiss

“Now come the defendants, 1550 Hinman Avenue Building Corporation, a corporation, Frank W. Cauley and Rosalie Hill Cauley, and move for judgment against the plaintiffs because the complaint is substantially insufficient in law, and specify the following respects :—

“(1) That the instruments enumerated and specified . . . are not such instruments as constitute clouds upon the title of the plaintiffs within the meaning of the statutes and decisions of the State of Illinois, in reference thereto, nor does any one of such instruments constitute such a cloud and that this Court has no jurisdiction to declare said instruments, or any one of the same, null, void, terminated and at an end, as against the plaintiffs, as a cloud upon the title of the plaintiffs.

“’ (2) That this Court has no power or authority to order and direct the defendants to said complaint to execute and deliver to the plaintiffs Quit Claim Deeds, conveyances, releases, satisfaction pieces and other instruments . . . and has no power to designate or appoint a commissioner for the purpose of executing and delivering the same.

“ (3) That it appears from said complaint that there are certain funds and securities on deposit with The Northern Trust Company, in accordance with the terms of the ninety-nine year lease referred to in said complaint, in which these defendants have an interest and that it further appears from said complaint that this defendant, 1550 Hinman Avenue Building Corporation, has constructed and placed on the premises described in said complaint, certain valuable improvements and that said complaint contains no offer to do equity in relation to said funds and securities on deposit with The Northern Trust Company, or in connection with and in reference to said valuable improvements so placed upon said land.

“(4) That said complaint discloses no ground for equitable, relief by this Court, prays for no equitable relief or remedy which this Court has power to grant and that it appears from said complaint that this Court has no jurisdiction in equity to entertain the same.

"By reason whereof, the said defendants, and each of them, move that said complaint be dismissed.” This motion, one in the nature of a special demurrer, based upon four grounds, was overruled, on August 2, 1934, and appellants refusing to answer the complaint it was taken as confessed against them. After evidence heard a decree was entered which ordered, adjudged and decreed that plaintiffs were the absolute owners of the real estate in question and appurtenances, free and clear of any and all claim or interest therein of defendants and rightfully in possession thereof as against any claim or interest therein of defendants; that the lease, assignments thereof, trust deeds, mechanics’ liens, judgments, and any and all claim or interest in and to said real estate and appurtenances of defendants are set aside and declared null, void, terminated and at an end as against plaintiffs, as a cloud upon their absolute title in fee simple in and to said real estate and appurtenances, and that the same be delivered up to be canceled under the direction of the court; that defendants are enjoined from interfering with the title or possession of plaintiffs, and the Northern Trust Company, defendant, is ordered and directed to transfer and deliver to plaintiffs all of the cash and securities remaining on deposit with it, free and clear of any and all claims and interests of defendants, and that defendants are forever barred and enjoined from claiming any right in said cash or securities.

Appellants contend that “the court erred in denying the motion of defendants to dismiss the complaint for the reason that the instruments sought to be removed as clouds upon title of plaintiffs did not constitute such clouds as a court of equity in Illinois has power to remove.” As to the ten instruments and claims that plaintiffs ask to have set aside, etc., the lease and the assignments of the same naturally belong to one class; the others, consisting of three trust deeds from various lessees conveying the leasehold interest, claims for mechanics’ liens against the leasehold interest, and certain judgments against the lessees, to another class. We will consider the two classes separately.

Appellants argue that the lease was not and could not he a cloud upon plaintiffs’ title. Plaintiffs, in their brief, state: “Plaintiffs did.not attempt in this suit to have the indenture of lease declared void. It was a valid instrument when made, and though the leasehold which it created has been terminated, it is a valid instrument now, for the purpose of fixing the rights and liabilities of the parties while the leasehold was in existence and on and after its termination. Plaintiffs did not ask the Court to declare the indenture of lease invalid or non-enforceable ah initio. It was enforceable when made; and for the purpose of fixing the rights and interests of the parties, it is enforceable now. . . . Plaintiffs did not ask the Court to forfeit the leasehold.”

Our Supreme Court has frequently, stated what constitutes a cloud on title:

“A cloud on a title is a semblance of a title, either legal or equitable, or a claim of an interest in lands appearing in some legal form but which is, in fact, unfounded. (Rigdon v. Shirk, 127 Ill. 411.) It is a title or encumbrance apparently valid but actually invalid. (Goodkind v. Bartlett, 136 Ill. 18.) It exists where the claim of an adverse party" to land is valid upon the face of the instrument or the proceeding sought to be set aside, and extrinsic facts are required to be established to show the supposed conveyance to be inoperative and void. (Reed v. Tyler, 56 Ill. 288.) This court has held that a bill will not lie to remove a mere verbal claim or oral assertion of ownership in property as a cloud upon the title. Such clouds upon title as may be removed by courts of equity are instruments or other proceedings in writing which appear upon the records and thereby cast doubt upon the validity of the record title.- (Parker v. Shannon, 121 Ill. 452.)” (Allott v. American Strawboard Co., 237 Ill. 55, 60-61. Italics ours.)

“A cloud on title is an outstanding claim or encumbrance, which, if valid, would affect or'impair the title of the owner, and which appears on its face to have that effect but. which can be shown by extrinsic evidence to be invalid. A cloud exists where a title of an adverse party to land is valid upon the face of the instrument or the proceedings sought to be set aside, and it requires extrinsic facts to show the supposed conveyance to be inoperative and void. (Reed v. Tyler, 56 Ill. 288.) A cloud is where the claim of an adverse party is valid upon the face of the instrument and it requires the establishment of extrinsic facts to show the supposed conveyance to be invalid. (Brooks v. Kearns, 86 Ill. 547.) A cloud is a semblance of title, either legal or equitable, or a claim of interest in lands appearing in some legal form, but which, in fact, is unsound. (Rigdon v. Shirk, 127 Ill. 411.) A cloud upon title is a title or encumbrance apparently valid but actually invalid. (Goodkind v. Bartlett, 136 Ill. 18; 7 Cyc. 255; 6 Am. & Eng. Ency. of Law,—2d ed.—147.) Where the title claimed is invalid on its face, so that it can never be successfully maintained, it can never amount to a cloud. (Gage v. Starkweather, 103 Ill. 559.) In such a case an action based on such invalid claim of title would fall of its own weight, without any proof in rebuttal. If the proceedings on which a claim is founded are on their face totally void, so that any person inspecting the record and comparing it with the law is at once apprised of the irregularity, there is no cloud. (Cooley on Taxation, 542.) If the instrument or proceeding is on its face plainly illegal or void there is no cloud, and there is no occasion for the interference of a court to nullify or set it aside. (6 Am. & Eng. Ency. of Law,—2d ed.—153.) ” (Roby v. South Park Com’rs, 215 Ill. 200, 203-4. Italics ours.)

“A bill will not lie to remove as a cloud on the title a mere verbal claim or oral assertion of ownership in land. The clouds which may be removed by a court of equity consist of instruments or other proceedings in writing which appear upon the record and cast doubt upon the validity of the record title. (McCarty v. McCarty, 275 Ill. 573; Allott v. American Strawboard Co., 237 id. 55; Parker v. Shannon, 121 id. 452.) The hill in this case was filed for the sole purpose of securing the construction of the language used in a deed. The alleged cloud was the mere verbal claim of ownership by-appellants. The bill did not state such a cause of action as authorized equity to grant relief. The alleged cloud was not a cloud as defined by the authorities.” (Trustees of Schools v. Wilson, 334 Ill. 347, 350. Italics ours.)

According to the allegations of the complaint and the admissions of counsel for plaintiffs, the lease is a valid instrument that evidences the agreement of the parties thereto. The general rule that a lessee is bound to admit his landlord’s title and a valid lease can never be a cloud upon the title is well settled. Bearing in mind what our Supreme Court has stated as to what constitutes a cloud, we are unable to see how the instant lease, a valid instrument, which by its terms admits the title of plaintiffs, could be a cloud on their title. The instrument which constitutes the alleged cloud was executed by plaintiffs and Libbie B. Hill, whose right, title and interest in the premises plaintiffs subsequently acquired, and appellants’ estate in the premises was derived through plaintiffs ’ title, and appellants are, of course, standing by that title in this proceeding. The lease was recorded by plaintiffs, or with their consent. Plaintiffs allege that the relationship of landlord and tenant in possession existed, under the lease, for a period of eight years. If it be assumed that the lease was properly terminated, the act of termination would not operate to make a'valid lease an instrument “apparently valid but actually void,” and a cloud upon the title. Indeed, plaintiffs concede, in their brief, that under the allegations of the complaint the act of termination did not cause the lease to become invalid, void, or non-operative. Terminating the lease could affect only the tenancy of appellants and it could not create a cloud where none existed before. Indeed, plaintiffs here argue that after ter■minating the lease and re-entering upon the premises they still retained their rights under the lease; that the lease “is a valid instrument now, for the purpose of fixing the rights and liabilities of the parties while the leasehold was in existence and on and after its termination . . . it is enforceable now.” In the complaint they not only treat the lease as a valid and enforceable one but they seek to have the court determine (1) that they have proceeded properly and in accordance with the terms of the lease, in terminating it, in re-entering the premises and in repossessing the same; (2) that they are the absolute owners of the real estate and appurtenances, free and clear of all claim or interest of defendants therein and rightfully in possession as against any claim or interest of defendants under the lease, and (3) to have the court decree them certain alleged rights under the lease.

As an afterthought, plaintiffs now contend that the complaint can be sustained upon the theory that the doctrine of functus officio applies to the lease. Bouvier defines the term functus officio as follows:

“A term applied to something which once has had life and power, but which has become' of no virtue whatsoever.”

Black’s Law Dictionary, as follows:

“Applied to an officer whose term has expired, and who has consequently no further official authority; and also to an instrument, power, agency, etc., which has fulfilled the purpose of its creation, and is therefore of no further virtue or effect.”

14 Am. & Eng. Ency. of Law, — 2d ed. — p. 563, as follows:

“The term .(functus officio) is also applied'to something which once had validity and power, but which has become of no value.”

It is a sufficient answer to plaintiffs’ instant contention to say that the complaint does not proceed upon the theory that the lease had become functus officio at the time that the complaint was filed. Indeed, to justify the relief plaintiffs seek, in the complaint, they are obliged to contend that the lease, not only at the time the complaint was filed, but now, has validity and power. To support their contention that the doctrine of functus officio applies to the lease plaintiffs cite only two Illinois cases, Skinner v. Baker, 79 Ill. 496, and Maguire v. City of Macomb, 293 Ill. 441. In the Skinner case the land in question was sold upon a cash basis and it was agreed that the deed from the seller to the buyer should be deposited with the cashier of a bank; that the buyer should deliver to the cashier a draft for $5,800, drawn upon one Hughes, which should be sent for payment and that in the event the draft should be paid in due time the deed should then be placed upon record, and in case the draft was not paid the deed was to be returned to the seller.,The buyer signed an agreement to give up and relinquish all claims to the premises if the draft should not be paid. The draft was not paid, and the deed was returned by the cashier to the agent of the seller and canceled. But the buyer gave a written lease to the premises to a third party, which instrument was recorded. The Supreme Court held that no title passed by the deed, that all claim of the grantee to the land under the contract was extinguished and all rights of those claiming under him ceased, and that the recorded lease was a cloud upon the title of the owner and should be removed by a court of equity. The lease in that case cast doubt upon the validity of the record title. In the Maguire case, Maguire.devised, by will, certain land to the city of Macomb, subject,' however, to conditions. Upon his death his widow, as trustee under his will, filed a bill to have a certhin ordinance, in relation to the demise, passed by the city and a written acceptance of the land by it canceled and set aside as clouds upon her title as trustee, and to have the title to the land confirmed in her as trustee. The Supreme Court held that no title ever vested in the city because of its failure to comply with all of the conditions precedent, and that the acceptance and ordinance were clouds on the trustee’s title.

Plaintiffs argue that equity has jurisdiction to remove from the records “any instrument which, though apparently outstanding and valid, is in reality functus officio, where evidence de hors such record of title itself is necessary to show invalidity or termination,” and cite a number of Illinois cases, none of which sustains plaintiffs’ theory that the doctrine of functus oficio applies to the instant lease. Only the first case cited in support of the above contention need be noticed, Redmond v. Pachenham, 66 Ill. 434, 438. In that case certain land was purchased with the money of Redmond and the title taken in the name of one Deveraux, in order to prevent its being made liable to the debts of Redmond. Deveraux executed a mortgage upon the premises to one Sizer, February 18, 1847, and on December 3, 1847, Deveraux conveyed the land to the heirs of Redmond and thereby completely executed the supposed trust except in so far as he had made the said mortgage. The trial judge found that the mortgage debt had been paid, and the Supreme Court sustained that finding and held that the incumbrance of the mortgage was extinguished by the payment, and the heirs’ title was complete under the conveyance from Deveraux. The distinction between the mortgage there involved and the lease in the instant one is obvious. The mortgage purported to convey the title of Deveraux. Here the lease admits plaintiffs’ title. Plaintiffs also cite the following from 51 C. J. 158-9:

“Leases and Contracts Therefor. The general rules as to what constitute clouds on title apply to leases and contracts to lease. Whenever proof of extrinsic facts is necessary to establish that an outstanding lease, regular on its face, was invalid at its inception, or, although originally valid, has, by subsequent events, become functus officio, it constitutes a cloud on title. The same instrument may create both the title and the cloud thereon. Thus a provision in a long-term lease which the lessor asserts denies the lessee the right to replace buildings thereon, and which is susceptible of such construction, is a cloud on the lessee’s title. But there is no cloud on title where a lease or contract therefor is void on its face, or where extrinsic facts must be proved in order to establish its validity. ’ ’ An Illinois case, Skinner v. Baker, to which we have already referred, is one of the cases cited by Corpus Juris in support of the above text. While we deem it unnecessary to consider decisions of the sister States in determining this appeal, we may say that the decisions of other States cited by Corpus Juris in support of the above text, save one, Wright v. Davis, 145 Va. 370, relate to oil and gas leases, and the peculiar nature and purposes of such instruments are discussed at some length in one of the cases cited, Crain v. Pure Oil Co., 25 F. (2d) 824, 830. In Wright v. Davis, supra, a milling company leased a water power from a trustee and the beneficial owners. In deciding the case the court said (p. 381):

“A generation has passed, several of the original parties are dead and their plans for developing and utilizing the water power have all failed. Neither the lessee milling company nor its successors, the appellants, ever either asserted or claimed any of their peculiar rights under the lease (which also imposed burdens) or discharged any of its obligations thereunder. There has been a failure of consideration to the lessors. What then should a court do! We confess that we know of nothing better to be done than that which the trial court concluded to do, and that is to put the parties in the same position which they occupied at the time they made and expressed their agreement in writing.”

Plaintiffs contend that the complaint is aided by section 50 of the Chancery Act, Ill. State Bar Stats. 1935, ch. 22, ¶ 50, as amended in 1911. We find no merit in this contention. Plaintiffs, in their brief, treat the complaint as one to remove clouds from their title.

If we are correct in our conclusion that the lease was not a cloud upon plaintiffs’ title, it would follow that the assignments of the lease would not'be clouds.

There is merit in appellants’ contention that “plaintiffs, instead of bringing a direct action to determine that defendants are in default under the lease involved herein and to settle all the rights of the parties arising under said lease, including questions as to rent due, if any, and the right to the funds on deposit with The Northern Trust Company, have elected to bring an action under the guise of a bill to remove a cloud, whereby they seek to have the Court remove the lease in question from the record upon the assumption that defaults have existed and that the plaintiffs have complied with the terms of said lease and successfully terminated the same and established their right to such funds on deposit.” Appellants cite, in support of their contention, Nelson v. Burns, 255 Ill. App. 314; First Congregational Church v. Page, 257 Ill. 472; Greenough v. Greenough, 284 Ill. 416; Chicago Auditorium Ass’n v. Cramer, 8 F. (2d) 998; Willing v. Chicago Auditorium Ass’n, 277 U. S. 274. To refer to one of the cases cited: In Nelson v. Burns, supra (opinion by Mr. Justice Wilson), suit was brought by a landlord, based upon a lease that contained, inter alia, an option for renewal under certain conditions. The landlord claimed that the tenant made statements to prospective tenants to the effect that he had a lease beyond the period fixed by the lease and that he intended to remain upon the premises, and the landlord sought to enjoin the tenant from interfering with the leasing of the premises and from casting a cloud upon the landlord’s title by claiming rights in the premises beyond the term of the lease. The action there was clearly without merit, as spoken words cannot be construed as a cloud upon title, but we refer to the case because certain language in the opinion bears upon the complaint in the instant case. To quote from the opinion (p. 320):

“Courts do not undertake to construe provisions of leases before a cause of action arises and will not undertake to construe them for the purpose of guiding litigants in regard tq some future course of conduct. Neither does a case of this character come within the section of the Chancery Act, Cahill’s St. ch. 22, sec. 50, giving to nisi prius courts the right to hear and determine bills to quiet title and to remove clouds.

“There is no question of title involved in this proceeding. Both the landlord and, the tenant agree that the title is in the landlord. A tenant ccuimot dispute his landlord’s title. The lease, itself, is not a cloud. Complainants, however, seek to create a cloud by reason of statements of the tenant concerning a clause of that lease. We do not believe this is sufficient to place this proceeding among that class of cases intended by the provisions of section 50 of the Chancery Act, Cahill’s St. ch. 22, par. 50. Chicago Auditorium Ass’n v. Cramer, 8 F. (2d) 998.

“The provision of the lease contained in the instrument entered into by and between the parties, if in itself a cloud, was created by the acts of both the defendant and the complainants. In our opinion, however, section 12 of the lease is more than a cloud. It is a claim under which the defendant asserts his right to a new lease. It may be a good claim or it may be a doubtful claim, but it is more than a cloud.” (Italics ours.)

As to the second class of instruments that plaintiffs prayed be set aside as clouds upon the title, etc., it appears from the allegations of the complaint that they are all claims against the interest of the lessee and that they do not affect, in any way, the interest of the lessors. If we are correct in our conclusion that the lease is not a cloud upon the title it follows that the instruments belonging to the second class are not clouds.

Plaintiffs concede that the direction in the decree to the Northern Trust Company to deliver to plaintiffs the securities in question was a relief “purely incidental” to the principal relief sought.

Appellants have strenuously argued several other contentions in support of their claim that the decree should be reversed and their motion to dismiss sustained, but in the view that we have taken of the appeal we do not deem it necessary to consider the same.

The decree of the circuit court of Cook county as to defendants 1550 Hinman Avenue Building Corporation, Frank W. Cauley and Rosalie Hill Cauley (appellants) is reversed, and the cause is remanded with directions to the trial court to vacate the order of August 2, 1934, overruling and denying the motion of appellants to dismiss the complaint, and that an order be entered sustaining the motion of appellants to dismiss the complaint as to them.

Decree reversed as to appellants and cause remanded with directions to vacate order of August 2, 1934, and to enter order sustaining motion of appellants to dismiss the complaint as to them.

Sullivan and Fbiend, JJ., concur.

Additional Opinion Upon Petition for Rehearing

Plaintiffs now concede that they are unable to cite any Illinois case that holds that a lease like the one. in question constitutes a cloud on title which a court of equity will remove, but they still contend that other jurisdictions have uniformly so held. As we stated in our opinion, we deem it unnecessary to consider. d.ecisions of the other States, in view of the frequent decisions of our Supreme Court as to what constitutes a cloud on title. It is somewhat significant, however, that the able counsel for plaintiffs cite only four cases in support of their contention, Wilmore Coal Co. v. Brown, 147 Fed. (Penn.) 931; Riedman v. Barkwill (Cal.), 34 P. (2d) 744; Andrews v. Russell, 85 Cal. App. 149, 259 Pac. 113; Anderson v. Guenther (Ore.), 25 P. (2d) 146. Wilmore Coal Co. v. Brown involved a bill to cancel certain coal leases, executed in 1878 and 1880, as clouds upon the title. As the court states in its opinion: “According to the law of Pennsylvania, by which the subject is necessarily governed, the so-called leases to the defendant Brown constitute a sale and conveyance of the coal and minerals in place.” (Citing cases.) The section where the leases were located was entirely undeveloped at the time the leases were made, except for farming. There was no railroad into the section and the leases provided that unless one was so built within five years the leases should be null and void. No such railroad was ever built, and the lessee for 24 years took no steps to mine or develop the land. The court held that under the facts of the case the leases were invalid and constituted a cloud upon the title. Andrews v. Russell involved an oil lease. In our original opinion we referred to the peculiar nature and purposes of oil and gas leases. In Riedman v. Barkwill an oil and gas lease was involved, and the decision is based upon Andrews v. Russell. Anderson v. Guenther presents a petition for a rehearing, the original opinion appearing in 22 Pac. (2d) 339. There the Supreme Court of Oregon held that plaintiff’s equity suit to remove a cloud from title was not maintainable because she had an adequate remedy at law. A judgment had been rendered against her, in an action at law, execution levied upon certain real property owned by her, and upon the execution sale Guenther, the plaintiff in that proceeding, purchased the property. More than a year after the entry of the judgment plaintiff entered a motion to vacate the judgment. While that motion was pending* she filed her suit to remove a cloud on title claiming that the service of summons by publication in the action at law was fatally defective. The Supreme Court held that the action of the trial court in dismissing her equity suit was justified upon the ground that plaintiff had an adequate remedy at law; that if her contentions in respect to the service by publication were true,' the judgment was void and it was the duty of the circuit court to vacate it. Plaintiff also contended, in her equity suit, that in the law action the trial court lacked authority to set aside the sheriff’s deed and that therefore the maintenance of the suit to remove cloud was necessary, but it was held that there was no merit in this contention and the court observed that orders vacating, the judgment, the sale, and the confirmation of the sale, would appear in the same record as the one out of which the sheriff’s deed emanated. None of the foregoing cases supports plaintiffs’ contention.

In their petition for rehearing plaintiffs urge that if we adhere to our holding that the lease does not constitute a cloud on title that equity can remove, we should then treat the complaint as one to establish and confirm title to real estate, and that we should affirm the portions of the decree which hold that plaintiffs are the absolute owners of said real estate and appurtenances, free and clear of all claim or interest of the defendants and rightfully in possession as against any claim or interest of the defendants and that the defendants and all persons claiming under them are forever enjoined from asserting any claim to the real estate and appurtenances as against plaintiffs ’ title and right of possession. This belated position of plaintiffs tends to support the contention of defendants, strenuously urged, that the present proceeding is an attempt, in the guise of a complaint to remove a cloud from title, where none exists, to avoid direct action in which the rights of the parties, arising under the lease, might be determined. In "their brief all of the points urged in support of the decree are based upon the .theory that the complaint is one to remove certain clouds from title. To quote from their brief: “Plaintiffs did not ask the aid of the Court, either in terminating the leasehold or in declaring that what plaintiffs had done to terminate it had been effective. The leasehold éstate which the lease created had been terminated before the bringing of suit; plaintiffs were back in possession; all improvements and appurtenances, if any, had become the absolute property of the plaintiffs without any right of defendants to compensation therefor . . . . "What then was the relief sought in these proceedings ? Plaintiffs alleged their ownership and possession; the making and recording of the indenture of lease; the creation by the lessees of a variegated assortment of recorded claims subsidiary to the leasehold; the termination of the leasehold, and, ipso facto, of the claims; the continued appearance on the record of both lease and instruments evidencing the claims; and they thereupon prayed removal of these recorded instruments from the record as clouds on their title. Did such a complaint present a proper case for equitable cognizance?” From the allegations of the complaint it is clear that the sole ground urged for equitable relief is the alleged cloud on title. In this connection it must be noted that the second class of instruments that plaintiffs prayed be set aside as clouds upon the title, etc., are claims against the interest of the lessee and do not affect, in any way, the interest of lessors, and if the lease is not a cloud upon the title the instruments belonging to the second class are not clouds. Plaintiffs are obliged to justify certain provisions of the decree “as incidental to the main relief asked.”

Plaintiffs argue that as they are now in possession of the premises and, therefore, unable to bring forcible entry and detainer proceedings, and as the lease is of record, a prospective purchaser would be obliged to investigate the facts as to whether or not it is still in force and effect, and that as long as the lease remains upon the records the owner of the property would have difficulty in disposing of it. In the instant case plaintiffs did not see fit to bring forcible entry and detainer proceedings, but they allege that, in accordance with the terms of the lease, they declared the lease and the term demised ended, “re-entered the said demised premises . . . and expelled, removed and put out from the said premises . . . every other person occupant in or upon the same, including each and all of the defendants herein, and on said date repossessed the same and now possess and enjoy the same." Plaintiffs are hardly in a position to complain of the consequences that followed their own choice of procedure. But we do not think that the situation is as serious as plaintiffs state. They allege that they are in possession of the premises, and possession of land is notice to all persons dealing with it of whatever rights the one in possession claims. Plaintiffs have the right to record copies of the notices of termination and the affidavit of service, which would be further notice to the world of plaintiffs ’ claims as to the lease. The evidence shows that they put up a sign on the property “so people would know who the owner was," appointed an agent to have charge of the building to be erected, and that they have signed leases for apartments in said building.

The petition for rehearing is denied.

Rehearing denied.

Sullivan and Friend, JJ., concur.


source: Caselaw Access Project

author: Mr. Presiding Justice Scanlan

license: Public Domain

text:
    Chauncey J. Jones, Appellant, v. Harris Trust and Savings Bank and The First National Bank of Chicago, Appellees.
    Gen. No. 38,021.

      Opinion filed November 5, 1935.
    Rehearing denied November 22, 1935.
    Louis W. Reinecker, Jr., of Chicago, for appellant.
    Lord, Lloyd & Bissell, of Chicago, for appellee Harris Trust & Savings Bank; L. Duncan Lloyd, of counsel.
    Nat M. Kahn, of Chicago, for appellee First Nat. Bank of Chicago.
   Mr. Presiding Justice Scanlan

delivered the opinion of the court.

Chauncey J. Jones sued Harris Trust & Savings Bank, a corporation, in a contract action of the first class. Defendant caused The First National Bank of Chicago, a corporation, to be brought into the action as a third party, under the rules of the municipal court. After a trial by the court there was a finding and judgment for defendant and plaintiff appeals.

The statement of claim alleges that the copartnership doing business as Jno. F. Clark & Co. (hereinafter called Clark & Co.), on October 30, 1931, drew a cheek upon defendant for $5,353.50, payable to the order of plaintiff; that on November 3, 1931, defendant paid the check upon a forged indorsement of plaintiff’s signature and deducted the amount of the check from the account of the drawer; that notice of the forgery and a demand for the return of the money so deducted was made upon defendant, whereby defendant became indebted to Clark & Co. in the sum of $5,353.50 with interest thereon at the rate of five per cent per annum from November 19, 1931, the date of the demand; that on April 20, 1933, Clark & Co. assigned to plaintiff their claim against defendant; that plaintiff is the actual and bona fide owner of the claim and that defendant is indebted to him in the amount of the check, with interest as stated. Leave was granted defendant to issue a verified third party notice to The First National Bank of Chicago, which notice sets forth, inter alia, that defendant and third party were banking corporations; that Clark & Co. were depositors with defendant and had a commercial checking account with it; that on October 30, 1931, Clark & Co. issued a check drawn upon defendant and payable to the order of plaintiff; that before any indorsements appeared on the check it was presented to defendant for certification without the knowledge or consent of plaintiff or Clark & Co., and that defendant, without knowledge thereof, stamped upon the face of the check, “Accepted,” etc., but that said acceptance was not a legal acceptance and was of no binding force by reason of the matters stated in the affidavit; that on November 3, 1931, third party defendant presented to defendant the check, through the Chicago Clearing House, with the name Chauncey J. J ones written on the back thereof; that there also appeared on the back of the check the following: “Pay The First National Bank Chicago, Ill. 6528 Or Order Abe M. Bohr, ’ ’ followed by the indorsement of third party defendant which guaranteed all prior indorsements upon the check; that defendant, relying upon the indorsement of third party defendant, paid the latter the $5,353.50; that on November 18, 1931, Clark & Co. notified defendant that payment had not been made to plaintiff, that the name Chauncey J. J ones indorsed upon the check was not his indorsement and was a forgery, and that third party defendant and prior indorsers had no valid or legal title to the check when it was presented for payment, and Clark & Co. made a demand upon defendant to reimburse and make good its commercial account to the extent of $5,353.50; that defendant immediately gave notice of the alleged forgery to third party defendant and also notified it that if defendant was held liable it would request that judgment be entered against third party defendant to make good its guarantee in its indorsement; that defendant is entitled to recover from third party defendant such amount or amounts, if any, as plaintiff may recover against it in this action and it demands judgment against third party defendant for such amount, if any, as may be found due and owing from defendant to plaintiff.

In the statement of defense filed by defendant it alleges, inter alia, that prior to the filing of the instant suit plaintiff filed in the municipal court of Chicago a suit against Clark & Co. in which plaintiff alleges that he demanded the return of 100 shares of Gillette Safety Razor Company preferred stock or the proceeds from the sale thereof; that plaintiff by filing the said suit elected to disclaim any interest which he might have had in the check in question or the moneys represented by it; that on April 20, 1933, plaintiff executed a release which recites that plaintiff had made claim against Clark & Co. for the proceeds of the sale of said stock, that the parties were desirous of settling any controversy relating thereto and that plaintiff releases Clark & Co. from all claims, etc., by reason of the sale of said stock; that said release operates to the benefit of defendant and releases it from any liability to Clark & Co. in connection with the check; that ‘ ‘ any cause of action Jno. F. Clark & Co., a co-partnership, might have had against defendant, due to Jno. F. Clark & Co.’s liability to the plaintiff herein, is dependent upon such liability, all such liability of Jno. F. Clark & Co., a co-partnership, to plaintiff was released by said plaintiff, Chauncey J. J ones and accordingly the liability of defendant to Jno. F. Clark & Co., a co-partnership, if any, is also thereby released”; further alleges that plaintiff was not the intended payee in the check and denies that he was the payee of the check; further alleges that defendant is informed and believes that a short time prior to October 30, 1931, one Sam Forman delivered to Clark & Co. the said certificate evidencing the said stock registered in the name of plaintiff and indorsed in blank, with the signature of the indorsement guaranteed by the First National Bank of Waukegan and witnessed by one George W. Fay, which said certificate was delivered to Clark & Co. for sale on the New York Stock Exchange and was thereafter sold by them on said exchange for a price, after deducting commission, amounting to $5,353.50, and that the check was then issued and delivered to said For-man and was thereafter paid and charged to the account of Clark & Co.; that defendant denies that the indorsement on the check was not made by plaintiff or with his authorization or consent, express or implied, and further denies that the indorsement on the check is a forgery; that Clark & Co., plaintiff’s assignor herein, has not and will not suffer any loss or damage by reason of or resulting from the allegations contained or set forth in the statement of claim filed herein, or the payment by defendant of the check, or the charging of the check against the account of Clark & Co.; that the payment of the check has been ratified by the acts of the parties; further alleges that plaintiff was negligent in his conduct and dealings in the entire transaction, which made it possible for the transaction to occur, and any loss which he might have incurred is directly attributable to himself.

In the trial court third party defendant filed no appearance and no plea of any kind, but its attorney was present during the trial and took part in the defense of defendant. Under Rule 41 of the municipal cqurt of Chicago, third party defendant was in default for its failure to enter an appearance. In this court defendant has not filed a brief, but third party defendant, notwithstanding the fact that it was in default in the trial court, has filed a brief in behalf of itself only. In our consideration of the case we have not deemed it necessary to question third party defendant.’s position in this court. Defendant, however, has filed a motion here ‘‘ that in the event that the judgment of the lower court is reversed and judgment entered in this court against the appellee, Harris Trust & Savings Bank, in favor of the appellant, Chauncey J. Jones, then that a judgment be entered herein against the Appellee, The First National Bank of Chicago, a corporation (third party defendant), in favor of the Harris Trust & Savings Bank, a corporation, for such like amount and costs, conditioned upon said Harris Trust & Savings Bank satisfying such judgment as may be entered against it in favor of the appellant, Chauncey J. Jones, in this court.” A verified affidavit in support of the motion is attached to it. The affidavit recites the steps taken in the trial court to make The First National Bank of Chicago á third party to the action, and further recites:

“4. That The First National Bank of Chicago, a corporation third party defendant, has not filed any answer, plea or pleading of any kind in connection with said third party notice issued pursuant to order of court but has made default in this connection.

“5. That the defendant, Harris Trust & Savings Bank, did on the 2nd day of March, 1934, tender the defense of this cause to the First National Bank of Chicago, a corporation, and thereafter the attorneys for The First National Bank of Chicago, a corporation, joined with the attorneys for the defendant, Harris Trust & Savings Bank, in the preparation and filing of the affidavit of defense herein.

‘‘6. That at the trial of said cause the said The First National Bank of Chicago, third party defendant, defended said action by the said plaintiff against Harris Trust & Savings Bank and that the court did at the conclusion of the trial enter a finding, in favor of the defendant, Harris Trust & Savings Bank.

“7. That the appellant, Chauncey J. Jones, has asked that the judgment of the lower court be reversed, and that judgment be entered in this court in favor of the appellant, Chauncey J. Jones, against the Harris Trust & Savings Bank, one of the appellees herein.

“8. That the appellee, The First National Bank of Chicago, a corporation (third party defendant), heretofore filed its brief and argument herein. It is stated on pages 1 and 2 thereof as follows:

“ ‘Moreover, the real party defendant is The First National Bank of Chicago, who endorsed the check in question after receiving it from one of its customers for deposit and obtained payment thereon from the Harris Trust & Savings Bank. In other words, the real parties to this controversy are John F. Clark & Company, the drawer of the check (who assigned their rights under the check to Jones), against The First National Bank of Chicago, who, under the rules of the Municipal Court, is described as “Third Party Defendant.” ’

“And that the First National Bank of Chicago is in fact the real party in interest as defendant herein.

“Wherefore, the appellee respectfully represents that in the event that the judgment of the lower court is reversed and judgment entered herein in favor of the appellant, Chauncey J. J ones, and against the appellee, Harris Trust & Savings Bank, said appellee, Harris Trust & Savings Bank, would be entitled to recover judgment against The First National Bank of Chicago (third party defendant), for a like amount and costs, upon the payment by the appellee, Harris Trust & Savings Bank, to the appellant, Chauncey J. Jones, of such judgment and costs as may be entered against it in this court. ’ ’

Third party defendant has not answered this motion, but states in its brief, that “The First National Bank of Chicago, third party defendant, is in fact the defendant in this case,” and that if the judgment of the lower court is reversed and judgment entered here in favor of plaintiff, that defendant bank would be entitled here to a judgment against third party defendant for a like amount upon the payment by defendant to plaintiff of the judgment.

The facts were stipulated. Plaintiff was 80 years of age at the time of the transactions in question, which occurred during October, 1931. He was a former president of the First National Bank of Waukegan but had retired from business at the time in question. Certain securities, including 100 shares of Gillette Safety Razor Company preferred stock, were obtained from plaintiff by a gang of swindlers upon the promise that they were not to be sold or pledged, or used for any purpose, but were to be held by the swindlers, to show the good faith of plaintiff. The securities had theretofore been pledged by plaintiff to a bank and at the time of the pledge were indorsed in blank by him and his signature guaranteed by the bank, but plaintiff forgot that fact, apparently, when the swindlers obtained possession of the securities. When the swindlers obtained the securities they at once attempted to sell or dispose of them. They sold the Gillette stock through the brokerage house of Clark & Co. and the latter, after deducting commissions and expenses, drew their check upon defendant, payable to the order of plaintiff, in the sum of $5,353.50, dated October 30, 1931, and delivered it to Forman, one of the swindlers. On November 2, 1931, the check was presented to defendant for certification by someone other than plaintiff or Clark & Co. and it was certified and accepted by defendant. At the time the check was cleared through third party defendant it bore a purported indorsement of plaintiff and also an indorsement of one Abe M. Rohr, through whose account with third party defendant the check was cleared and paid. Third party defendant received payment of the check from defendant, through the clearing house, and deposited the proceeds to the account of Rohr. The purported indorsement of plaintiff was not in his handwriting and he did not authorize anyone to write his name on the back of the check. During October and November, 1931, Rohr, who was a member of the gang of swindlers, had a checking account with third party defendant and he withdrew the proceeds of the check as soon as they were credited to his account, and third party defendant was never reimbursed by him for the amount of the check.

Charles H. Borden, an attorney, testified, on behalf of plaintiff, that when the matter was brought to his attention by plaintiff he negotiated with Clark & Co. for the return of the Gillette stock; that in the early part of November and for several months thereafter, he, as plaintiff’s attorney, discussed the matter of the check with defendant; that its senior vice president requested the witness to obtain an affidavit in reference to the purported indorsement of plaintiff on the check and to then take the matter up with the auditor of the bank, Mr.‘Burkhardt; that on November 19, 1931, he presented the affidavit to defendant, at which time “defendant bank” notified the witness that it would take the matter up with third party defendant; that Mr. Burkhardt told him that the purported indorsement was obviously a forgery and the liability would eventually fall upon third party defendant but that before defendant paid the amount of the check he wanted to discuss the matter with third party defendant ; that a few days later Burkhardt stated that third party defendant was trying to find some excuse to avoid paying the check and that if it were not for the attitude of that bank the funds would be turned over very quickly. The witness further testified that on November 19, 1931, at the direction of Clark & Co., he made a formal demand on behalf of that company upon defendant for the return of the funds deducted from the account of that company. The witness further testified that Burkhardt and the. comptroller of defendant stated to him that they were inviting a suit from Clark & Co., as there was no question about their liability as far as Clark & Co. was concerned, but they wanted to settle the question between themselves and third party defendant, and that it would not in any way affect the banking relations of Clark & Co. if suit was commenced; that thereupon the witness said: “Will you convey that information to Jno. F. Clark & Co., particularly to Dan L. Laser?” to which they replied, “Yes, we will,” whereupon they called the Clark company on the telephone and explained the situation to Dan Laser, one of the partners; that they then told witness that if he would see the attorney for Clark & Co. that an assignment would be executed and a suit could be started against them “and this question will be settled very quickly.” No testimony was offered in rebuttal of the testimony of Borden. • The trial court ruled that that testimony was admissible only as to defendant. As a result of" the conferences between Borden and defendant, Clark & Co. executed and delivered to plaintiff an assignment whereby they sold, transferred, assigned and set over to plaintiff all claims, causes of action, etc., that they had or might thereafter acquire against defendant by reason of the payment of the check in question, and as a consideration for the assignment plaintiff released and discharged Clark & Co. from all claims, debts or demands by reason of the sale of the stock in question other than the right, title and interest sold and assigned by Clark & Co. to plaintiff under the assignment. The suit of plaintiff against Clark & Co. was thereupon dismissed by stipulation and the instant suit was commenced.

From the attitude of defendant in the trial court and here, where no brief is filed in its behalf, it is plain that it does not care to assume the defense to the" action, and it is undisputed that the assignment by Clark & Co. to plaintiff of their claim against the hank was made at its suggestion. From the letter of December 2, 1931, written by the attorney of third party defendant to defendant, it appears that at that time third party defendant based its denial of liability upon the sole ground that the indorsement in question was not forged. That defense was abandoned when it was stipulated that the purported indorsement of plaintiff was not in his handwriting and that he did not authorize anyone to write his name on the back of the check. The law of this State as to the obligations of a bank to its depositor in the matter of checks drawn by the latter is so well settled that it is unnecessary to cite the same. (See United States Storage Co. v. Central Mfg. Dist. Bank, 343 Ill. 503; Cosmopolitan Bank v. Lake Shore Bank, 343 Ill. 347; Wizard Oil Co. v. United States Express Co., 265 Ill. 156; Gustin-Bacon Co. v. First Nat. Bank, 306 Ill. 179.)

It is conceded that in the instant case plaintiff stands in the shoes of Clark & Co.

Third party defendant states, in its brief: “The fundamental defense of the defendant here is that Clark & Company suffered no pecuniary loss as a result of issuing their check in payment of the stock they purchased. . . . The basic defense in this case, which overcomes all of the contentions of the plaintiff, is that Clark & Company suffered no pecuniary loss by reason of the check. ... At the risk of repetition, we again state that since Clark suffered no loss because of the check, and received value therefor, namely, the stock, Clark’s assignee, Jones, can recover no more than Clark could recover; and since no damages to Clark have been proven, we respectfully urge that the judgment of the trial court below was correct.” We find no merit in the strained argument in support of this position. It is stipulated that defendant charged Clark & Co.’s commercial account with the amount of the •check and that the former has not reimbursed, in any way, the latter for the amount thus charged. Plaintiff had sued'Clark & Co. to recover the amount realized by them from the sale of his stock, and in return for the dismissal of that suit and the release of its liability in the transaction in question Clark & Co. assigned to plaintiff its right of action against defendant. It would hardly be seriously contended that Clark & Co. could not have brought an action against defendant and recovered the amount of its check that was paid out on the forged indorsement of the payee, and third party defendant not only concedes but insists that plaintiff in the instant action stands in the shoes of Clark & Co. It is claimed that Andrews v. Northwestern National Bank, 107 Minn. 196, is a parallel case upon the facts and that the decision therein supports the instant contention. Whether we agree with all that is stated in that opinion, or not, is immaterial, as the case is not applicable to the instant one upon the facts. There the plaintiffs forwarded to their agent a check to be used in paying their debt to a customer. The agent forged the name of the payee and deposited the check in a bank to his own credit. The bank on which the check was drawn paid it on the forged indorsement. The agent was short in his account with plaintiffs and he opened an account in a bank in the name of plaintiffs and deposited therein a sum of money which included the proceeds of the forged check. The plaintiffs demanded of the agent certain moneys which they claimed he should account for and he thereupon informed them that it was in a bank to their credit, except about $79, which he then paid, and handed to them a bank pass book in their name which showed that they had to their credit in that bank the sum of $1,003.01. The opinion states that when plaintiffs accepted the bank book they were not aware that the amount credited to them therein was to any extent the proceeds of the check that was paid on the forged indorsement and the $1,003.01 was given by the agent to plaintiffs in settlement of a shortage known on that date and for no other purpose and upon no other consideration. Later plaintiffs sued the bank to recover $926.72, the amount of the check that was paid on the forg-ed indorsement. The Supreme Court of Minnesota stated that the facts presented “a rather unusual condition of affairs”; that under the circumstances of the case the agent’s debt to plaintiffs remained unpaid, and that

“The result of the entire transaction is that the money started with Andrews & Gage, and, after passing around the circle, came back to them. The fact that credits, instead of cash were used, does not change the legal effect.”

In a concurring opinion by Lewis, J., he states:

“The mere fact that appellants received the proceeds of the check from Langdon would not prevent recovery. If appellants had been misled and had lost an opportunity to otherwise collect their claim from Langdon, then in my judgment the defense here urged would not be tenable. . . . Although the court found that appellants had no knowledge or information that the money received from Langdon was to any extent the proceeds of the check, yet the court also found that they had the check with all the indorsements in their possession, and knew that Thomas had never received it, and had not indorsed it, and that Langdon had indorsed it, claiming to be the agent of Thomas. It seems reasonably clear that appellants were in possession of all of the facts, and could readily have ascertained by an examination of the bank book that the money paid them by Langdon was the proceeds of the check. If appellants knew that Langdon had forged Thomas’ name, and had drawn the money on the check from the local bank, they had every reason for believing that the money placed to their account in the pass book was that identical money. In receiving the money thus paid out by the local bank, appellants ratified the indorsement, and consented to its collection from the bank upon which the check was drawn. ... I concur in the result. ’ ’

Third party defendant states that “as soon as Jones knew, all the facts he promptly repudiated the sale and demanded his stock,” and they argue that he “thereby disclaimed any interest in the proceeds of the stock evidenced by the check. . . . Jones again evidenced this election by instituting suit ag-ainst Clark & Company for the value of his stock; and in his Statement of Claim he again admitted that he first demanded the stock from Clark & Company. Having made his election, he is estopped to change the facts.” The law pertaining to the election of remedies has no place in this proceeding. Whether it might have been interposed by Clark & Co. in the suit by plaintiff against them need not be determined. Certainly the point now made could not have been interposed had Clark & Co. sued defendant, and, as we have several times stated, third party defendant properly insists, in its brief and in the oral argument, that plaintiff, in the instant proceeding, stands in the shoes of Clark & Co.

Third party defendant contends, (a) “Foreman became owner of the check”; (b) “the check was payable to bearer.” It is sufficient to say that neither of these contentions is supported by the facts of the case.

Third party defendant closes its brief by contending that the negligence of plaintiff in trusting a dishonest person with his stock certificate was the proximate cause of his loss and that, therefore, “it is inequitable to penalize defendant.” It is sufficient to say in response to this argument that the negligence of plaintiff, if any there was, would have no bearing upon Clark & Co.’s right to recover in an action by them against defendant. In such an action the judgment against defendant would result from its negligence in paying the check upon the forged indorsement of plaintiff. The alleged negligence of plaintiff, even if it could he considered in the instant case,- did not “directly and proximately affect the conduct of the bank in the performance of its duties.” (See United States Storage Co. v. Central Mfg. Dist. Bank, supra, 513.) Indeed, had Forman obtained the check by stealth, the result, in so far as the payment of the check is concerned, would have been the same.

After a careful consideration of the undisputed facts and the law bearing upon the same, we have reached the conclusion that there is no merit to the defense and that plaintiff is clearly entitled to a judgment.

We find the issues as between plaintiff, Chauneey J. Jones, and defendant, Harris. Trust & Savings Bank, a corporation, in favor of plaintiff and against defendant, and we assess plaintiff’s damages at $6,413.73 (which includes the amount of the check, $5,353.50, and interest at the rate of five per cent per annum from November 19, 1931, $1,060.23) and costs, and judgment will be entered here for plaintiff and against said defendant for $6,413.73 and costs, execution to issue against said defendant therefor.

We find the issues as between defendant, Harris Trust & Savings Bank, a corporation, and the third party, The First National Bank of Chicago, a corporation, in favor of defendant and against third party, and assess defendant’s damages at $6,413.73 and costs, and judgment will be entered here for defendant and against third party for $6,413.73 and costs, but execution will be stayed thereon until defendant pays to plaintiff the amount of the judgment and costs entered here against it and in favor of plaintiff.

Judgment of the municipal court of Chicago reversed.

Judgment here for plaintiff, Chauncey J. Jones, and against defendant, Harris Trust & Savings Bank, a corporation, in the sum of $6,413.73 and costs.

Judgment here for defendant, Harris Trust & Savings Bank, a corporation, and against third party, The First National Bank of Chicago, a corporation, in the sum of $6,413.73 and costs, execution on this judgment to he stayed until defendant pays plaintiff the amount of the judgment entered here against it in favor of plaintiff.

Sullivan and Friend, JJ., concur.


author: Mr. Justice Friend

text:
    In re Petition of William L. O’Connell. L. H. Heymann et al., Appellants, v. William L. O’Connell, Receiver of West Side Trust and Savings Bank of Chicago, and Harry J. Reynolds, Appellees.
    Gen. No. 37,846.

      Opinion filed November 5, 1935.
    John M. Lee and Carl M. Loos, both of Chicago, for appellants.
    Thomas D. Nash and Michael J. Ahern, both of Chicago, for appellees.
   Mr. Justice Friend

delivered the opinion of the court.

January 12, 1934, the auditor of public accounts appointed William L. O’Connell receiver of the West Side Trust & Savings Bank, pursuant to the provisions of sec. 11 of an act to revise the law with relation to Banks and Banking (ch. 16a, sec. 11, Illinois State Bar Stats. 1935), and, thereafter, on January 15, 1934, he filed a bill in the superior court setting forth in substance that the bank’s capital stock had become impaired, that its business was being conducted in an unsafe manner, that a receiver had been appointed by him, and invoking the court’s jurisdiction for certain specified purposes, including the ultimate dissolution of the bank.

July 13, 1934, during the pendency of said dissolution proceeding, the receiver filed a petition in the circuit court alleging that he was the holder of certain first, mortgage real estate bonds secured by various trust deeds on real estate in which the bank had been designated as trustee and praying for the appointment of a successor trustee, evidently upon the theory that his appointment as receiver was tantamount to the dissolution of the bank so as to render it unable to further act as trustee under provisions of the various trust deeds in which it had been appointed. Pursuant to an ex parte hearing had on the day the petition was filed, without notice or service of summons on anyone, the court, on recommendation of the receiver’s solicitors, appointed Harry J. Reynolds successor to West Side Trust & Savings Bank under all trust indentures in which the bank had been designated as trustee, many of which were pending under foreclosure before various chancellors of both the circuit and superior courts. This appeal followed.

The various trust deeds in which the bank had been designated as trustee contained the following provisions :

“In case the trustee hereunder shall resign, be removed or be. dissolved or otherwise become incapable of acting hereunder, a successor or successors may be appointed by the holder or holders of a majority in amount of the bonds then outstanding hereunder, by an instrument or concurrent instruments in writing duly signed by them and recorded in the Recorder’s Office of the county or counties wherein the mortgaged property is located; or in case said bondholders shall not appoint a new trustee or trustees hereunder as aforesaid within thirty days after any such vacancy shall occur, then the holder or holders of any one or more of said bonds may apply to any court in any county wherein said mortgaged property or any part thereof is located, having general chancery jurisdiction, for the appointment of a new trustee hereunder. ’ ’

The only possible theory advanced for invoking th.e court’s jurisdiction to appoint a successor-trustee is, as the receiver contends, and as the decree of the circuit court finds, that the appointment of the receiver by the auditor of public accounts was tantamount to a dissolution of the bank, and under the foregoing provision automatically disqualified the bank from further acting as trustee, and created a vacancy in the trusteeships. This contention is effectively disposed of by the recent case of Dillon v. Elmore, first determined by this court in 276 Ill. App. 548, and affirmed by the Supreme Court in Dillon v. Elmore, 361 Ill. 356. In discussing the question here under consideration, the court said:

“Appellant next contends that the instant Gilruth was appointed receiver under section 11 of chapter 16a (Cahill’s Stat. 1933, p. 160; Smith’s Stat. 1933, chap. 16½, p. 200;) there was an actual or ‘practical’ vacancy because the Englewood Trust & Savings Bank became incompetent to act as trustee; that the title to all its assets passed immediately to the receiver; that he is not given authority by that statute to administer the bank’s trusts; that the amendment to section 11 of the Banking act, providing that receivers shall make an accounting of all the trusts within a reasonable time and on behalf of the banks resign such trusts, was passed in 1929, and would impair the obligation of the contract between the parties to the trust deed if construed to make receivers successors in trust, thus contravening section 10 of Article 1 of the Federal Constitution. Appellant cites State v. Cantley, 330 Mo. 942, 52 S. W. (2d) 397, Young v. Bankers’ Trust Co., 250 Ky. 1, 61 S. W. (2d) 904, and City Bank and Trust Co. v. Graff, 175 Ga. 340, 165 S. E. 238, in support of the proposition that in those States the statutes dealt with in the respective decisions cited did not expressly authorize receivers or liquidating officers to administer trusts, and therefore such receivers had no such authority. It is sufficient to say that those statutes had no provision similar to that contained in section 11 of our Banking act, providing for the accounting in a reasonable time and resignation of trusts by the receiver on behalf of the bank.

“Appellant also relies upon Steenrod v. Gross Co., 334 Ill. 362, Nelson v. Toluca State Bank, 334 id. 83, and People v. Shurtleff, 353 id. 248, in support of the proposition that appointing a receiver to take possession of the assets of a corporation and to distribute them is tantamount to dissolving the corporation by a decree in equity, and upon the Shurtleff case, People v. Niehaus, 356 Ill. 104; and People v. Peoria Life Ins. Co., 357 id. 486, to support the proposition that a bank receiver cannot administer trusts on behalf of a bank. In answer to these two propositions it should first be remembered that a construction of the words of section 11 of the Banking act as to resignation and accounting of a bank’s trusts was not before us. Without in any way questioning the correctness of the decisions which contain the statement that the appointment of a liquidating receiver of a corporation is tantamount to a dissolution by a decree in equity, nevertheless the actual dissolution of a banking corporation does not occur the instant the liquidating receiver of a State bank is appointed by the Auditor of Public Accounts. The corporation continues as a legal entity. (Rosenblatt v. Johnson, 104 U. S. 462; 3 R. C. L., sec. 291, p. 660.)

“In answer to the contention that the amendment to section 11 of the Banking act of 1929 would impair the obligation of the contract contained in the trust deed if it be construed to mean that the receiver for the bank is to carry on the trust as a successor trustee, it is sufficient to say that no such construction can properly be made of the language of this section as thus amended. The legislature had the power to provide that the receiver for the bank should make an accounting within a reasonable time and resign, the trust on behalf of the bank. The bank thus is recognized as remaining trustee and remaining in existence as a legal corporate entity. No succession as trustee is expressed or implied by such language. A salutary provision is made for the aid of orderly transaction of business looking to the welfare of parties whose rights might be adversely affected. Their contractual obligations are not impaired. There is, moreover, no charge in this bill that the receiver failed to act in a reasonable time, and no attempt has been made, if such were the case, to compel by appropriate court action the accounting and resignation of the trust by the receiver on behalf of the bank trustee. The bank continued to be the trustee until the receiver resigned the trust on its behalf on March 7, 1932.”

In their original brief counsel for defendants, who have appealed, rely on Belofsky v. Johnson, 266 Ill. App. 351; Epstein v. Choldenko, 272 Ill. App. 155; Erickson v. Country Club Bldg. Corp., 272 Ill. App. 341; West Side Trust & Savings Bank v. Kempston, 275 Ill. App. 104; and Chemical Nat. Bank of Chicago v. Hartford Deposit Co., 156 Ill. 522, to refute the contention of the receiver that his appointment was tantamount to the dissolution of the bank, and they argue that nowhere in sec. 11 is there a provision which in the slightest degree indicates that the appointment of a receiver for a bank should be treated, for any purpose whatsoever, as a dissolution. The subject was discussed in all of these decisions. In Chemical Nat. Bank v. Hartford Deposit Co., supra, the court drew an analogy between provisions of our act and those of the National Banking Act, concluding by saying (p. 526):

“We find nothing, in any of the sections of the law wherein a receiver is authorized to be appointed, which in the slightest degree indicates that an appointment should be treated, for any purpose whatever, as a dissolution of the corporation.”

In Belofsky v. Johnson, supra, after discussing that portion of sec. 11 of the Banking Act which requires the receiver to resign all trusteeships as soon as can reasonably be done, the court concluded by saying (p. 355): “We think it obvious that there was no vacancy in the trusteeship and therefore the court should not have appointed a receiver of the premises.” In Epstein v. Choldenko, supra, the court again in discussing the provisions of sec. 11 of the Banking Act, concluded (p. 159) that “the entity of the bank still remained, however, until final dissolution. ’ ’ In Erickson v. Country Club Bldg. Corp., supra, it was said (p. 343): “There was no vacancy in the trusteeship which required the court to appoint a successor trustee, and neither the Stony Island State Savings Bank nor its receiver was made a party to this proceeding. ’ ’ In Mason v. Bloomington Library Ass’n, 237 Ill. 442, it was held that the court has no power to appoint a successor trustee until there is proof that a vacancy existed. In West Side Trust & Savings Bank v. Kempston, the court, after reciting the various provisions of the trust deed by which successor trustees could be designated, said that (pp. 110, 112):

“If the appointment of a receiver for the bank created a vacancy in the trusteeship, as alleged, then the majority of the bondholders should have been given an opportunity to elect a successor trustee, as provided by the trust deed. . . .. The majority of the bondholders under the trust deed were given no opportunity to elect a new trustee, as provided by the trust deed, that the intervening petitioner, upon a proper showing, might have had a new trustee appointed, that the receiver of the trustee was given no opportunity to comply with, the statute, providing for an accounting and resignation by such receiver of its trusteeship, . . . ”

The receiver seeks to distinguish these cases by relying upon seel 11 of the Banking Act and cites other cases to support his position. This question, however, was likewise disposed of by the Supreme Court in Dillon v. Elmore, supra, as follows:

“It is contended that ‘otherwise,’ as used in article 12, ‘ and in case of a vacancy in the office of trustee or otherwise, a successor or successors may he appointed, ’ created a condition upon the appointment of a receiver for the bank which entitled the bondholders to appoint a successor trustee, and that therefore after the filing of the present bill the remaining bondholders lacked authority to appoint a successor trustee on June 17, 1932. Appellant attributes to that word the meaning that it contemplated incompetence, inability or disqualification. If we assume that it did, appellant’s position is not improved. The appointment of a receiver for the bank did not of itself automatically create any incompetence, inability or disqualification as trustee on the part of the bank as a corporate entity, but section 11 of the Banking act maintained the bank’s status as trustee until such reasonable time as the bank, through its receiver, should resign its trusteeship. We have carefully examined the cases from foreign jurisdictions cited by appellant in support of this contention. Each case involves some public office where there was an interregnum by actual or civil death or an absence from such office. The cases as applied to the facts and contract here do not sustain the position of appellant.”

After default of the mortgage obligations upon the various issues in which the West Side Trust & Savings Bank had been designated as trustee, a bondholders’ committee was created under an agreement dated December 30, 1931. It appears from the record that January 18, 1934, this committee, by an instrument in writing, appointed a successor trustee under those trust indentures in which the committee held a majority in amount of bonds then outstanding, and the appointee duly executed his acceptance of the trusts and recorded the same in the recorder’s office. It is the receiver’s two-fold contention that the purported appointments by the bondholders’ committee were void, because (1) under the trust deeds involved the bondholders could not delegate the power to appoint, to an agent, and (2) that the depositors’ agreement is void in that it lacks mutuality and consideration, imposes no duties on the committee, and grants it the right to declare the agreement operative, to revoke it at will, or to construe it. Substantially all the time allotted to receiver’s counsel on oral argument was devoted to these two propositions, and in fact counsel stated that the receiver would be content to rest his whole case on the validity of the bondholders’ agreement, and that if it be valid the naming of a successor trustee by the committee was valid and the appointment of Reynolds by the circuit court was improper.

Holding as we do that the designation of William L. 0 ’Connell as receiver by the auditor of public accounts was not tantamount to a dissolution of the bank, notwithstanding the finding in the decree of the circuit court and the contention of receiver’s counsel, no vacancy existed in the various trusteeships, and therefore the question as to whether the bondholders’ committee, the receiver as holder of bonds, or individual bondholders, had the right to name a successor is not before us. In People ex rel. Barrett v. West Side Trust & Savings Bank, 280 Ill. App. 308, we held that it was mandatory under the statute (sec. 11, ch. 16a,. Cahill’s Ill. Rev. Stat. 1933) upon the receiver appointed by the auditor of public accounts to resign; on behalf of the bank, all trusteeships “as soon as can reasonably be done.” In conformity with that opinion, the receiver will be required to resign all trusteeships on behalf of the bank. Then, and only then, will vacancies occur in these trusteeships, and the question may subsequently arise as to whether the bondholders’ committee, the receiver or individual bondholders have the right to name a successor.

For the reasons stated, the decree of the circuit court will be reversed and the cause remanded with directions to vacate and set aside the decree appointing Harry J. Reynolds successor trustee to the West Side Trust & Savings Bank.

Reversed and remanded with directions.

Scanlan and Sullivan, JJ., concur.