text:
    The Lawndale National Bank of Chicago, Appellant, v. Kaspar American State Bank, Appellee.
    Gen. No. 38,840.

      Opinion filed February 9, 1937.
    Klenha & Greenfield, of CMcago, for appellant; William E. Anderle, of CMcago, of counsel.
    Sabath, Perlman, Goodman & Rein and Ring, Uhlir & Cuchna, all of CMcago, for appellee; Morton C. Chesler, Morris L. Kilmnick and Otto F. Ring, all of CMcago, of counsel.
   Mr. Justice Friend

delivered the opinion of the court.

The Lawndale National Bank of Chicago, as successor trustee under the last will and testament of William C. Schreiber, deceased, filed its complaint against the Kaspar American State Bank, its predecessor in trust, for an accounting of the trust estate, seeking to subject defendant to liability for its investment of $16,000 of funds belonging* to the trust estate in certain bonds which defendant owned in its individual capacity. The chancellor dismissed the complaint for want of equity, and this appeal followed.

From the essential facts it appears that November 23, 1922, William C. Schreiber made his last will and testament, nominating as executor and trustee the Kaspar State Bank, of which he was a stockholder and director. The will was attested by three witnesses who were all stockholders of the bank. One of the witnesses was also an officer of the baMc and another its attorney. Upon the consolidation of the Kaspar State Bank with the American State Bank, under the name of Kaspar American State Bank, the three attesting witnesses became stockholders of the new institution and continued and remained stockholders thereof. Schreiber died November 29, 1923. His last will and testament was admitted to probate and letters testamentary issued to the Kaspar State Bank as executor on January 15, 1924. February 19, 1926, the Kaspar American State Bank, defendant herein, as successor to Kaspar State Bank, filed its final account as executor of the estate of William C. Schreiber, which was approved subject to the production of certain vouchers, and March 31, 1926, the executor was discharged and the estate closed. January 22, 1926, while the bank was still acting as executor, it purchased from itself, individually, for the trust estate the following securities, in the total sum of $16,000:

“$6,000 of bonds executed by Sokol Slavsky Gymnastic Association, bearing interest at 6% per annum, being part of total issue of $500,000 secured by trust deed to Kaspar American State Bank as Trustee.

“$5,000 of bonds executed by Abe Adler and Joe Levin, bearing interest at 6% per annum, being part of a total issue of $60,000 secured by trust deed to Kaspar American State Bank as trustee.

“$5,000 of bonds executed by Joseph and Rose Jiracek, bearing interest at 6% per annum, being part of a total issue of $75,000, secured by trust deed to Kaspar American State Bank as trustee.”

The last will and testament empowered the trustee to invest the trust estate—

“in such income bearing securities as said trustee in its discretion may select, preference being given in the order of their sequence to: loans secured by trust deeds or mortgages on improved real estate in Cook County. . . . To sell or change such investments at any time . . . provided, however, that said trustee may purchase for the account of said trust estate from the Kaspar State Bank individually, such trust deeds or mortgages, bonds or securities as said bank may offer or sell to the public generally, without liability to account to said trust estate for the usual commissions which may have been charged by said bank individually for the making of any such loans . . . .” (Italics ours.)

The loans of which these investments are a part were originally made and negotiated through the officers of the defendant, individually, and the total issues of each of these loans were originally owned and held by defendant in its individual capacity. It charged the makers of the loans commissions of three per cent and received these commissions from the borrowers.

November 17, 1932, the superior court confirmed the appointment of a receiver for the defendant bank and entered an order authorizing* the receiver to resign this trust on behalf of defendant. At the same time plaintiff was designated as the successor trustee under the provisions of the will, and upon filing its acceptance of the appointment the receiver delivered to it, among* other assets of the estate, the securities involved herein.

We have heretofore held it to be the rule, as plaintiff contends, and as laid down in numerous decisions throughout the United States, including Illinois, that a trustee, even though acting in good faith, cannot invest funds of the trust estate in securities owned by bim in his individual capacity. (Michoud v. Girod, 4 How. (U. S.) 503; St. Paul Trust Co. v. Strong, 85 Minn. 1; Cornet v. Cornet, 269 Mo. 298; Magruder v. Drury, 235 U. S. 106; Joliet Trust & Savings Bank v. Ingalls, 276 Ill. App. 445; Bold v. Mid-City Trust & Savings Bank, 279 Ill. App. 365.) The rule enunciated in these decisions is based on sound public policy and is designed to remove every possible temptation from a trustee to make the trust fund a dumping ground for his own unsatisfactory ventures. It has been designated as an “inflexible rule,” followed in cases where the best of faith, care and prudence were exercised and under circumstances showing* that the loans were perfectly secured and for the highest rate of interest ordinarily obtainable.

Defendant, while conceding this to be the rule applicable to the investment of trust funds, relies by way of defense and in justification of the investment in its own securities, upon the provisions of the ninth clause of the will, hereinbefore set forth, authorizing the trustee to purchase “for the account of said trust estate from the Kaspar State Bank, individually, such trust deeds or mortgages, bonds or securities as said bank may offer or sell to the public generally . . .” and authorities are cited purporting to hold that this rule of law may be abrogated by provision in the trust instrument, allowing the trustee to purchase from himself at a profit, or by express or implied waiver.

The position for which defendant contends is not without authority, but there are also cases holding that “no rule is more fully settled than that which forbids a trustee dealing with himself in respect of trust property, that no fraud in fact need be shown by the beneficiaries, and that no excuse can be offered by the trustee to justify such transactions. The fact established, the result inevitably follows.” (Baldwin v. Allison, 4 Minn. 11, 25; Bold v. Mid-City Trust & Savings Bank, 279 Ill. App. 365, 371, 372; Michoud v. Girod, supra; King v. Remington, 36 Minn. 15; Cornet v. Cornet, supra; Pomeroy’s Eq. Jurisprudence [3d ed.], sec. 958.)

• It is urged by plaintiff, however, that notwithstanding the authorization of the trustee to purchase its own securities with funds of the estate, this defense is not available in the instant proceeding because the appointment of the defendant by Schreiber’s will as executor and trustee was null and void, the attesting witnesses thereto having been stockholders of the bank. The law is well settled that a person who is appointed executor or trustee, or both, by will, is incompetent to attest it as a witness, because he will gain the commissions allowed by law if the will is established. (Godfrey v. Phillips, 209 Ill. 584; Jones v. Grieser, 238 Ill. 183; Jones v. Abbott, 235 Ill. 220.) This same doctrine has evidently been extended to cover cases where the trustee or executor nominated in the will is a corporation, and where one of its stockholders has attested same as a witness.

The question was presented to the court in Scott v. O’Connor-Couch, 271 Ill. 395. In that case Michael O’Connor executed his will at the People’s Trust & Savings Bank in Galesburg, where he had done considerable business. The attestation clause was in the usual form, containing* all the statutory requirements, and was signed by Nellie Stark and W. H. Pankey as witnesses. Nellie Stark was a stenographer and clerk in the bank, and testified to the execution of the will and that in her opinion the testator was at the time of sound mind and memory. Pankey testified to the same effect, but his testimony wras stricken because, when the will was executed he was a director and stockholder of the bank which was appointed executor. In an exhaustive opinion, written by Mr. Justice Cartwright, reviewing the decisions and interpreting* the statute applicable to the attestation of wills, the court concluded that Pankey, as a stockholder and director of the bank, was directly interested in its appointment as executor, and that “the legislative will that the beneficial interest of an attesting -witness shall be null and void can only be made effective as to the stockholder of a corporation by declaring null and void the provision which gives an interest to his corporation.” The decision arises from a construction of section 8 of the statute of wills (sec. 8, ch. 148, Illinois State Bar Stats. 1935, H 8; Jones Ill. Stats. Ann. 110.220) which removed the incompetency of the witness to the execution of the will to whom any beneficial devise, legacy or interest was made or given by the will, and provided that such witness should be compellable to appear and give testimony on the residue of the will in like manner as if no such devise or bequest had been made, but the devise, legacy or interest was declared to be null and void unless the will had been duly executed by a sufficient number of witnesses exclusive of such person, saving, however, to the witness any share of the testator’s estate not exceeding the value of the devise or bequest to which the witness would have been entitled if the will was not established.

The rule laid down in Scott v. O’Connor-Couch, supra, was approved in the later decision of Olson v. Larson, 320 Ill. 50, wherein it was again held that where a testator gives all his estate to a bank in trust the will is not void because, stockholders of the bank are the only attesting witnesses but the provision appointing the bank as trustee and as executor is void, and inasmuch as the court will not permit a trust to fail for want of a trustee a competent trustee should be appointed as well as an administrator de bonis non. It was there contended by defendants that the decision in the Scott case, supra, was at war with a long line of other cases decided by the Supreme Court and oug'ht therefore to be overruled, but with reference to this contention the court said:

“We have carefully examined the cases to which plaintiffs in error have referred as being in conflict with the Scott case. We are satisfied with that decision and that it is not in conflict with the previous decisions of this court under the amended statute.” The effect of these two decisions can no longer be questioned, and as a result of the rule enunciated it must be held that the appointment of the Kaspar Bank as executor and trustee was, under the circumstances of this case, null and void. It would logically follow therefore that the defendant took as trustee in the estate of William C. Schreiber, not under the will or under the authority therein contained, but only by virtue of its own act and operation of law.

An analogous situation applicable, however, to an executor and not a trustee, arose in the case of Penn v. Fogler, 182 Ill. 76, wherein George W. Brown was appointed administrator with the will annexed in the estate of Nathaniel M. McCurdy, deceased. It was claimed that inasmuch as the decree gave Brown generally “all the powers, rights, duties and authority that an executor could or might have, if named and mentioned in said will,” that Brown was thereby clothed with power to manage the bank stock which was part of the estate in accordance with the terms of the will. The court held, however, on authority of Hall v. Irwin, 2 Gilm (Ill.) 176, that the words hereinabove quoted did not confer upon an administrator with the will annexed the right to exercise the trust powers conferred upon an executor, but only the powers appertaining strictly to his office as executor, that he had no authority to execute the trust in regard to the bank stock and that his acts in so doing constituted him a constructive trustee, or a trustee de son tort. In this connection the court said (p. 96):

“Where one without authority undertakes to execute a trust, requiring the investment of a fund, he must himself carry all the risks, and make good all the losses, and have none of the profits, and his co-investors are equally liable. ‘A person may become a trustee by construction by intermeddling* with and assuming the management of trust property without authority. Such persons are trustees de son tort.’ (Perry on Trusts, — 3d ed. — Sec. 245; Morris v. Joseph, 1 W. Va. 256; Piper v. Hoard, 107 N. Y. 73.) ‘During the possession and management by such constructive trustees, they are subject to the same rules and remedies as other trustees.’ ” (Italics ours.)

The conclusion to be reached from these decisions is that inasmuch as the appointment of the Kaspar Bank as executor and trustee was null and void, the bank could not rely upon its appointment under the will and the authorization therein to invest trust funds in its own securities; that it assumed the trusteeship by its own act and not in pursuance of the, designation in the will, as a consequence of which its conduct becomes subject to the same scrutiny as that of any trustee. Therefore, the question whether defendant was justified in purchasing its own securities with funds of the trust estate is to be determined upon equitable principles governing the rights and duties of trustees, and not by the specific authorization in the will. These principles have already been stated and are fully discussed in Bold v. Mid-City Trust & Savings Bank, supra, wherein authorities from various States are cited and fully analyzed.

This cause was heard by the chancellor upon certain stipulated facts. Defendant offered to stipulate that if certain witnesses, whose competency was objected to by plaintiff, were permitted to testify, their testimony would disclose that Schreiber was a depositor in, borrowed from, and was a stockholder of the defendant bank for many years, as well as a director for approximately two and one-half years prior to his death; that he attended all the meetings of the board while he was a director, and that all real estate mortgages made by the bank during that period were approved by the board in his presence; that the will in question was drawn and executed at defendant’s office ; that Schreiber selected the witnesses to his will, and although his attention was called to the fact that the witnesses were connected with the bank, which made their competency questionable, that Schreiber nevertheless insisted that they attest his will. The competency of the witnesses through whom defendant offered to prove these facts was challenged on the ground that they were disqualified under sec. 2 of the Evidence Act (Ill. State Bar Stats. 1935, ch. 51, j[2; Jones Ill. Stats. Ann. 107.068). The court made no ruling on the offer, and in view of our conclusion as to the rule applicable to the liability of trustees we regard it unnecessary to pass upon the question. However, it is evident from the offer that Schreiber, as well as the attesting witnesses, who were stockholders and officers of the bank, were apprised of their disqualification as witnesses by reason of the fact that they were stockholders of the bank which had been designated as trustee in the will. Under the circumstances it was all the more incumbent upon those of the attesting witnesses who were charged with administrative duties of the bank to exercise the most careful scrutiny and care in the selection of investments made by the bank as trustee, notwithstanding the specific authorization in the will permitting the trustee to purchase securities of its own issue. One witness, who was the cashier of the bank and an officer, and another, as its counsel, knew that stockholders of the corporation were not proper attesting witnesses and their knowledge is imputed to the other officers who had charge of the bank’s investments and who also are presumed to know the law.

It is urged by defendant, however, that' this case can be distinguished from Scott v. O’Connor-Couch and Olson v. Larson, supra, because the competency of the attesting witnesses was not questioned when the will was admitted to probate and cannot now be attacked collaterally. This contention is not well taken because no attack is here made upon the will itself, but only upon the qualification of the trustee to act. Under the ruling in the Scott v. O’Connor-Couch and the Olson v. Larson cases the nomination of the defendant as executor and trustee was rendered void by reason of the fact that the subscribing witnesses were all stockholders of the bank. The validity of this will is not questioned. x

Defendant’s counsel also stress the point that the beneficiaries were present in the probate court by their counsel when the bank’s final report as executor was approved and that they made no objection; that no direct proceeding was instituted to review or reverse the order admitting the will to probate; and that after so many years they ought not to be heard to raise the question. The stipulated facts indicate that four of the beneficiaries were at the time of the hearing, and still are, minors. The law is well settled that in order to constitute ratification of an act it must be shown that the cestui que trustent had full and complete knowledge of the act, as well as knowledge of their legal rights, and were nnder no disability to assert them. (White v. Sherman, 168 Ill. 589, 605; Joliet Trust & Savings Bank v. Ingalls, 276 Ill. App. 445.) The suggestion of acquiescence, ratification or estoppel as a defense to this action appears to be an afterthought, because it was not raised or presented on the trial.

Various other points are urged, both for reversal and affirmance of the decree, but we regard those discussed as determinative of the issues involved and see no useful purpose in prolonging the discussion. For the reasons stated we are of the opinion that the decree of the circuit court should be reversed and the cause remanded with directions to enter judgment in favor of plaintiff and against defendant for $16,000, together with legal interest thereon from January 22, 1926, the/ date of the investments herein, to the date of the judg- - ment, less any interest credited to the trust estate on account of the investments in question, and that upon payment of said sum plaintiff be ordered to return to defendant the securities involved.

Reversed and remanded with directions.

Johh J. Sullivah, P. J., and Scahlaw, J., concur.


source: Caselaw Access Project

author: Mr. Justice Friend

license: Public Domain

text:
    Louis H. Himmel et al., Appellants, v. Melvin L. Straus et al., Appellees.
    Gen. No. 38,845.
    Opinion filed February 9, 1937.
    Shulman, Shulman & Abrams, of Chicago, for appellants ; Meyer Abrams, of counsel.

      Gottlieb & Schwartz, D’Ancona, Pflaum & Kohlsaat and Sonnenschein, Berkson, Lautmann, Levinson & Morse, all of Chicago, for appellees; Ulysses S. Schwartz, Claude A. Both, Isaac E. Ferguson and Harry E. Smoot, all of Chicago, of counsel.
   Mr. Justice Friend

delivered the opinion of the court.

Plaintiffs seek to reverse the order or decree of the superior court dismissing for want of equity their complaint, filed June 9, 1933, to set aside a decree entered by that court November 20, 1931, foreclosing the first mortgage trust deed securing $1,725,000 of bonds on property known as the Sheridan Cornelia Apartments, at 3500 Sheridan road, Chicago, and for other relief. When the matter came on for hearing on plaintiffs ’ exceptions to the report of the master, to whom the cause had been referred generally, the chancellor overruled the exceptions, approved the report and dismissed the complaint for want of equity. At the time plaintiffs filed their complaint the property had been sold pursuant to the decree of foreclosure, a plan for reorganization of the property had been accepted by 97.2 per cent of the first mortgage bondholders, all the second mortgage bondholders, and the owner of the equity of redemption, the plan had been consummated, and the new corporation formed pursuant to the plan had long been in possession of the property.

A brief summary of the circumstances leading to the foreclosure decree, the reorganization of the property and the interest of plaintiffs in this proceeding will promote a clearer understanding of the issues involved. The Sheridan Cornelia Apartments are located on the northwest corner of Cornelia avenue and Lake Shore drive. December 1, 1925, a first mortgage bond issue of $1,725,000 was placed on the property, through 8. W. Straus & Co. Thereafter, in 1926 and 1927, plaintiffs acquired $11,100 of the bonds. The interest on the principal indebtedness was paid up to and including- June 1, 1931. $36,000 of principal became due December 1, 1931. The trust deed contained a provision that monthly deposits should be made on account of this maturity, and $6,000 had been so deposited. The 1928 taxes amounted to $25,870.70 of which there was paid on July 1, 1931, $17,243.13. The owner had filed objections to the 1928 taxes, which became delinquent July 10, 1930. The 1929 taxes became delinquent May 15, 1931, and objections thereto were filed by the trustee after he took possession of the property June 26, 1931.

May 25,1931, S. W. Straus & Co., the house of issue, notified the bondholders in writing that while the J une 1,1931, interest would be paid, the mortgagor was in default in its deposits for the December 1,1931, maturity of principal, and that a committee had been organized under a deposit agreement of May 22, 1931, consisting of some of the officers of S. W. Straus & Co., to reorganize the property. Thereafter, July 1, 1931, the foreclosure proceeding* was instituted and the decree of foreclosure and sale was entered November 20, 1931, finding- an indebtedness of $1,600,000 due the trustee for the first mortgage bondholders and $200,000 to the holders of bonds under the junior mortgage.

Counsel for defendants characterizes this as one of the early reorganizations of real estate properties in Chicago. The plan of reorganization was not submitted to the court for approval in connection with the confirmation of the sale in conformity with more recent practices. Neither does it appear that the court approved the plan or exercised any jurisdiction over it. However, when the master’s report of sale came on for confirmation the details of the plan were fully explained to the court, and the order of confirmation recites that the chancellor was advised of the plan and of the participation of bondholders therein.

In January, 1933, the reorganization of the property was completed by conveyance of title to the new corporation, and in March of that year the committee advised the bondholders, including plaintiffs, of that fact and that new securities to be issued to them were ready for distribution. The instant proceeding, by which plaintiffs seek to attack collaterally the decree of foreclosure entered some eig'hteen months prior thereto, was instituted June 9, 1933. At that time there was due a balance on the 1928 taxes, all of the 1929 taxes were delinquent, and the 1930 taxes had not been paid. It appears from the record that since then all these taxes have been discharged, and the 1931 taxes, of approximately $29,000, have been paid down to a balance of $1,535.85, which was protested. As of June 25,1934, when the cause was on hearing before the master, the first half of the 1932 taxes of $11,374.94 had been paid, and the corporation then had on hand sufficient funds to pay the second half when they became due.

Plaintiffs deposited their bonds with the reorganization committee July 2, 1931, and they complain at the outset that they were not permitted to withdraw these securities when the plan of reorganization was announced. A summary of the plan was mailed to all the bondholders [including plaintiffs] December 15, 1932. A notice accompanying the plan apprised the bondholders that under the terms of the deposit agreement any bondholder dissenting from the plan of reorganization might, within 30 days after notice thereof, withdraw his bonds by (1) a written notice of dissent; (2) a remittance to the committee for its proportionate share of the expenses, and (3) a certificate of deposit duly indorsed, with bank guarantee of the indorsement. About a week after the plan was announced plaintiffs made an oral request on the sales manager of Straus & Co. for the return of their bonds, but none of them ever made a demand, written or otherwise, on any member of the committee or its secretary or on the depositary. Neither did they tender or pay the proportionate share of the expense requisite for withdrawal. The requirements imposed on dissenting bondholders for withdrawing their bonds were not unreasonable, and since plaintiffs had assented to and were bound by the provisions of the deposit agreement by accepting their certificates of deposit they could not withdraw their bonds without complying with the requirements thus imposed. They filed this proceeding as depositing bondholders, seeking relief as “representatives of this class,” and while they say in their brief, in the first sentence of “the statement of the case,” that by this equitable proceeding they are “seeking rescission of the deposit of the bonds,”-neither their complaint nor the amendment thereto prays for any such relief, nor do they urge this among their numerous points relied on for reversal. They are thus in the anomalous position of depositing bondholders, who, having been given an opportunity to dissent from the plan of reorganization and to withdraw their bonds, failed to do so and are now complaining of the reorganization plan to which they impliedly gave their consent.

Plaintiffs charge fraud and misrepresentation in the sale of bonds to them; fraud in obtaining the decree because the interest of the trustee was in conflict with that of the bondholders; that the foreclosure was a prelude to a reorganization, which is characterized as fraudulent, unfair, inequitable and initiated to foreclose the interests of the bondholders; that the property was sold to the nominee of the committee, at a ridiculously low price, which, coupled with the fact that it excluded competitive bidding by the owner of the equity of redemption, indicated a scheme to place the reorganization committee in control of the property, and therefore constituted fraud per se; that the trustee was an, officer of the promoting company and owed an obligation to the bondholders to protect their interests, independently of the terms of the trust deed; and that the approval of the sale under the plan of reorganization was designed to evade the Federal Securities Law, and was therefore fraudulent and void.

The charge of fraud and misrepresentation in the sale of the bonds to plaintiffs relates principally to printed material accompanying the sale of the bonds, which is explanatory of the slogan “43 years without loss to any investor,” employed by the house of issue in its sales statements. This pamphlet, entitled “What our Slogan means,” represented in substance that since the establishment of the house of issue in 1882 every bondholder had received in cash on the due date both principal and interest, without requests for renewal of any kind; that there was always a market for Straus bonds, which were accepted by the house as collateral for 30 or 60-day loans; that the representation “No investor ever lost a dollar,” was assurance of the soundness of the investments and of the care with which the interests of Straus clients were at all times safeguarded. The master specifically found that there was no evidence tending to show that any of these representations were untrue at the time plaintiffs received the statements, and in the absence of such showing plaintiffs cannot predicate charges of fraud and misrepresentations upon them. Some three years subsequent to the sale of the bonds a pamphlet was delivered to one of the plaintiffs, which contained material under the heading “our duty to our clients.” Plaintiffs charge that this material likewise contained misrepresentations. Since, as the master found, this pamphlet was received more than three years following the purchase of the bonds, the representations could not have been instrumental in inducing plaintiffs to purchase these securities, and are therefore immaterial.

It is next urged that the trustee was disqualified to act because of his conflicting interests, rendering the jurisdiction of the court colorable and the proceedings had thereunder null and void. It is argued that the foreclosure was instituted by the trustee for the equal protection of all bondholders; that the trustee, however, disqualified himself because of the personal gain he was to receive from the results of the reorganization plan, by which his organization gained control of the property and accepted fees; and that there was no one to represent the bondholders. White v. Macqueen, 360 Ill. 236, is cited and portions of the opinion are quoted to sustain the óontentions made. In that case the complaint alleged that the building corporation deposited with the trustee money with which to pay the interest on the bonds when due, but that he failed to make the payment; that the trustee from time to time misappropriated to his own purposes funds deposited with him. The trustee there was charged with formulating a plan to profit personally from the foreclosure; with soliciting and acquiring bonds in exchange for other securities of less value by means of fraudulent representations concerning the value of the bonds involved, and with using and misusing for his own purposes trust funds deposited with him. No charge of personal misconduct is made ag-ainst the trustee in this proceeding, and the portions of the opinion quoted by plaintiffs to sustain the contention of conflicting interests have no applicability to the facts of the instant case. The court, by its decree of November 20, 1931, found that the trustee was the proper representative of the bondholders and that their interests were not in conflict with his. It also found that the bondholders were not necessary parties; that there were defaults as alleged in the complaint, and that the only interest of the trustee was properly to foreclose the trust instrument. In so doing he acted promptly and effectively. The decree fixed the rights of the parties, ordered the property to he sold if the indebtedness was not paid and directed that any sale had under the decree be confirmed by the court. As to the conflict of the trustee’s interest with that of the bondholders, it appears from the evidence that the trustee did not participate in the conference at which the committee was formed. Plaintiffs charge that he co-operated with the bondholders, although there is no proof that he did so improperly, and the mere fact of his co-operation would not of itself indicate that fraud had been practiced by the committee or by the trustee. (American National Bank & Trust Co. v. Illinois Improvement & Bldg. Corp., 281 Ill. App. 17.) Neither is there any evidence that the trustee had any interest in this bond issue or the property securing it, except as the trustee under the indenture. He was a member of S. W. Straus & Co., but that firm was not interested in the reorganized property and had no interest in the second mortgage or in the mortgagor company. Neither S. W. Straus & Co., nor the trustee, received any of the stock in the reorganized company, nor did they have any control over the property. Mr. Straus received compensation for his services as trustee in possession, amounting to about 1% per cent of the gross receipts, and was also compensated for his services in foreclosing the trust deed, in accordance with the provisions of the trust instrument. These facts, of themselves, do not constitute a conflict between his interests and those of the bondholders. So far as we can determine the foreclosure proceeding was properly brought and expeditiously prosecuted to salg. No actual fraud is charged, nor were there shown any facts or circumstances from which fraud could be inferred. The rule is well settled that every presumption is in favor of the validity of the proceeding (People v. Culver, 281 Ill. 401, 404) and no convincing reason is disclosed by the record to rebut that presumption.

But plaintiffs argme that the trustee’s position in this proceeding was different from that of the ordinary trustee who is not connected with the house of issue; that being a member of the Straus & Co. organization his duties and responsibilities were much greater. They say it was his duty to inform the bondholders of the defaults in the nonpayment of taxes and in the monthly deposits, and that his failure so to do made him personally liable; that he was obliged to protect the interests of the bondholders, attend the sale, object to the inequitable bid, all of Avhich he failed to do; that he cannot institute proceedings and then be conspicuous by his absence and remain silent; that it was to the interest of his company and his associates to carry out the plans for reorganization and obtain the property at the lowest bid, and this position, they say, was inconsistent with his duties as trustee. All these arguments suggest that by reason of his position as officer of the promoting company the trustee had the obligation to protect the interests of the bondholders independently of the terms of the trust. Several cases from other jurisdictions are cited which suggest this rule, but our Supreme Court in Chicago Title & Trust Co. v. Robin, 361 Ill. 261, defined the duties of the trustee, as follows:

“Since the rights, duties and obligations of the trustee were contained and defined solely in the trust deed, its duty as trustee was simply to sell the property to satisfy the debt. Darst v. Bates, 95 Ill. 493.”

As to the failure of the trustee to inform the bondholders of defaults in the payment of taxes and in making monthly deposits, we find the folloAving facts established by the record: On May 25, 1931, the trustee notified the bondholders that the 1928 taxes became delinquent July 10, 1930. There was thus a delay of some 10 months before foreclosure proceedings were instituted. The 1929 taxes became delinquent May 15, 1931, which was only 10 days prior to the trustee’s notice. The owner had paid $17,243.13 on the 1928 taxes and filed objections to the balance, and was regarded as responsible by the trustee. It does not appear that anything was lost to the bondholders by not instituting foreclosure proceeding’s 10 months earlier, inasmuch as the mortgagor deposited all the income with the trustee and subsequently all delinquent taxes were paid. Plaintiffs argue that in 1928 or 1929 there was a market for Straus bonds; that the house was repurchasing these bonds and making loans on them at the time; and that if the bondholders had been informed of the true condition' they “might have unloaded their bonds on the house. ” Inasmuch as these taxes did not become delinquent until 1930, there was no occasion for notifying the bondholders earlier, and in 1928 and 1929, when plaintiffs’ counsel say there was a market for Straus bonds, the delinquency in taxes had not yet occurred. It has generally been held that the trustee is bound to exercise an honest and sound judgment as to the time to foreclose. (Rhode Island Hospital Trust Co. v. S. H. Greene & Sons Corp., 50 R. I. 305; New York, Security & Trust Co. v. Lincoln St. Ry. Co., 74 Fed. 67.) The trustee was therefore under no obligation to foreclose immediately on the tax default, and the delay cannot be charg’ed as a neglect of duty.

The failure of the trustee to attend the sale is next charged as a violation of duty. He was represented at the sale by his attorneys, and inasmuch as neither the trust deed nor the law requires him to attend personally, this contention is untenable. Plaintiffs also charge that the failure of the trustee to object to the bid of $338,000 constituted a violation of his trust duties. It was held in Chicago Title & Trust Co. v. Robin, supra, at 271:

“It was for the creditors, and not the trustee, to see that the property was not sacrificed.” Moreover, after advertising the property and holding the sale pursuant to the decree to the highest bidder, the master made his report of sale to the court. On confirmation thereof the trustee appeared by his counsel and advised the chancellor fully as to all the facts and circumstances in connection with the sale, including* the plan of reorganization. He performed his duty as trustee when he reported fully to the court. The chancellor, after being apprised of all the facts, considered the bid adequate and confirmed the sale. No showing was made by plaintiffs that if the chancellor had refused to confirm the sale, and ordered a resale, that a higher bid would have been obtained, and any suggestion to the contrary is purely conjectural.

It is next urged that the trustee delegated his duties after entering* into possession of the property, contrary to the elementary principles of the administration of trusts. This charge has reference to the management of the property. The master found that there was no fraud in connection with the management of the property, that the trustee was assisted in operating the building* by the management department of S. W. Straus & Co., and that John K. Murphy, a competent person, was placed in charge as his agent. Since these findings were not questioned by plaintiffs’ exceptions, they cannot now object to them.

Plaintiffs’ principal complaint is that the proceedings were initiated to foreclose the interests of the bondholders who would not surrender their rights to the ‘ ‘ self-appointed committee. ’ ’ They argue that this was not a bona fide foreclosure proceeding, but only a prelude to a reorganization, which is characterized as fraudulent, unfair and inequitable; that representations were made to the nondepositing bondholders that the sale would be held under prevailing conditions at which no outside bid, reflecting- “a fair value of the property” was probable, and that the committee would purchase at the sale and the share of nondepositors would be “ substantially less. ” It is charged that ‘ ‘ the helpless isolated bondholder was thereby coerced to become a depositor. He well knew he ivas in no position to compete with the committee which accumulated a large percentage of the bonds, which it could use in lieu of cash on such a sale, while the individual bondholder needed all the cash. The committee placed itself in a masterful position by its contract with the mortgagor to acquire the equity of redemption so that it thereby controlled the sale. If an ou+sider would bid the committee could redeem in the name of its dummy nominee. If the committee became the purchaser at any price no bondholder could redeem from such a sale. The dissenters were required to pay 2 per cent. The depositors were compelled to remain depositors and the nondepositors were coerced to part with the legal and equitable title of their securities and to intrust them to persons who did not invest anything in the project and who organized themselves as the alleged protectors, but in reality, as the profiteers at the bondholders’ misfortune.”

It has frequently been said that unless bidders could bid collectively at sales of this character they probably could not bid at all and there would be no sale, and indefinite delay of the sale would result to the detriment of all bondholders. The practice of using deposited bonds to bid at sales has been generally approved. The fact that individual bondholders are not in a position to compete with committees which have accumulated large percentages of the bonds, is well stated in Ketchum v. Duncan, 96 U. S. 659, as follows (p.673):

“It is said this enables those who have subscribed to that agreement, and who are a large majority of the bondholders, to purchase on paying a much less sum in money than would be required of other bondholders who have not signed the agreement. This is true; but we do not perceive that it is inequitable. After all, it makes no distinction against the minority which they have not themselves made by failing*- to secure a majority of the bonds. They are as much entitled to use their bonds in payment as any other bondholders are. It is their misfortune if they have not as many bonds as others have. They have no equity to cast their misfortune upon those who own more bonds than they do. Permission to bondholders who are mortgagees to purchase at a sale of the mortg*ag*ed property and to pay by their bonds is not only usual, but it is highly advantageous to all persons who have an interest. It-tends to enhance the price which may be obtained, and thus benefits other creditors as well as the mortgagor. ’ ’

The principle thus enunciated was adhered to by the Supreme Court of the United States in Kansas City Terminal Ry. Co. v. Central Union Trust Co., 271 U. S. 445, wherein it said (pp. 453-54):

“It now may be announced as settled doctrine, that where the value of corporate property to be sold under foreclosure is so great as to render co-operation between bondholders and stockholders essential in order to secure a bidder and prevent undue sacrifice of their interests, they may enter into a fair and open arrangement to that end.” In this connection it should be noted that not one of the nondepositing bondholders, holding* less than three per cent of the bonds, objected to the sale. Competitive bidding was not excluded, and as the court said in Ketchum v. Duncan, supra, it is the misfortune of the individual bondholders “if they have not as many bonds as others have. They have no equity to east their misfortune upon those who own more bonds than they do. . . .” The assertion that the depositors were compelled to remain depositors, and the nondepositors were coerced to part with the legal and equitable title of their securities, is not a justifiable statement, because depositors had the option of withdrawing their bonds upon compliance with reasonable provisions to which they had consented, and non-depositing bondholders, who were in a position to dissent, made no objection.

The charge that the reorganization plan was unfair and inequitable could well be dismissed without further comment, because plaintiffs pray for no relief in regard to the plan. Nevertheless they attack certain portions thereof. They say that “even the privilege to elect directors for the new corporation was taken away. ’ ’ This has reference to the voting trust created under the plan, which under the agreement could be terminated at any time by the direction in writing of 66%% of the outstanding trust certificates. Apparently the chief purpose of placing the stock in a voting trust was to insure a quorum at stockholders’ meeting's so that the business of the newly organized corporation could be transacted. With a widely scattered group of stockholders who had been given stock in lieu of their bonds it would manifestly be impossible to transact business, and this difficulty was anticipated by placing the stock in a trust to insure efficient management. The trustees were mostly disinterested persons of recognized standing, and the provision for termination of the trust operated as a safeguard for the stockholders of the corporation.

Plaintiffs ’ counsel complain also because 10 per cent of the stock of the reorganized corporation was awarded to the owner of the equity of redemption and second mortgage bondholders, contending that it deprived the first mortgage bondholders of their property without due process of law, in violation of the constitution. No complaint of this allotment was made in the bill, .nor was the point presented to the trial court on exceptions to the master’s findings. The record discloses that two per cent of the stock was allotted to the holder of the equity of redemption, 'and eight per cent to the holders of $200,000 of second mortgage bonds. The junior interests co-operated with the trustee at all times, beginning with the original default. They assisted in the reorganization, made available their right and interest in the property to the committee by conveying title to the new corporation, and caused the second mortgage to be canceled and released. A similar objection was raised in Allen v. Georgian Hotel Corp., 82 F. (2d) 917, of the Circuit Court of Appeals for the Seventh Circuit, filed March 31, 1936, not yet reported. In that case the plan of reorganization provided for a new company, with an issue' of 20,000 shares of common stock to take over the assets of the debtor. The stock was allotted, 70 per cent to the holders of the first and second lien bonds and 30 per cent to the second mortgage bondholders, general creditors and stockholders of the debtor. In discussing this question, the court said (pp. 919-20):

“As to allotment of 30 per cent of the stock to the subordinate creditors, we believe that this was fairly within the judicial discretion of the District Court. While it is not likely that at the present time the subordinate creditors would have realized anything if the first mortgage had been foreclosed, these creditors would, for three months after one year following the foreclosure sale, have had a right of redemption — a right which might have been valuable. And there is the possibility that, with a substantial ‘come-back’ in affairs, property values may ’increase sufficiently to give the debtor a substantial equity in the property of which these creditors would have the benefit. Such possibilitiess would tend to support the court’s discretion in making some allowance to these creditors in a proceeding under which there is to be effected a present adjustment of all the claims against the debtor, of whatever rank or class. This was evidently the view taken by the district court, and it receives support from Warner Bros. Pictures, Inc. v. Lawton-Byrne-Bruner Ins. A. Co., 79 F. (2d) 804. We see nothing in the plan or the record tending to indicate abuse of the court’s discretion in this respect.” The section of the constitution which this procedure is charged to have violated is not pointed out by plaintiffs nor discussed with sufficient particularity to warrant further comment.

We find no merit in the various contentions made by plaintiffs nor any justification for the manifold charg'es of fraud lodg'ed against the trustee and others connected with this foreclosure and reorganization. The proceeding was properly brought, expeditiously prosecuted and the premises sold in accordance with the decree of the court under circumstances fully in keeping with the prevailing economic conditions. The property was reorganized by January, 1933, under a plan which did not deprive the bondholders of the value of their securities, as plaintiffs charge, and “place control of the property for fifteen years in the hands of persons who betrayed the interest of the bondholders in the past, ’ ’ but replaced their bonds with stock of the new corporation and vested in them the ownership of the property which secured their bonds, in place of merely a lien thereon. Unless the trust is sooner terminated, the property will for 10 years, and not 15 years, as plaintiffs state, be in control of a board of trustees, composed of L. J. Harris and Maurice A. Biskind, representing the junior interests, who were never directly connected with S. W. Straus & Co., J. C. McCord, who is not connected at all with the Straus interests, Frederick W. Straus, who severed his connection with the house of issue in 1933, and Sidney H. Kahn, president of the Straus Service Corporation, the depositary of the stock trustees. Under the plan the nondepositing bondholders, who constitute less than three per cent of the bonds, received in excess of twenty cents on the dollar, and the other 97.2 per cent, the depositing bondholders, own the property. The delinquent taxes have been paid by the trustee, and so far as the record discloses the property is being well managed and in excellent condition. So far from being an unfair, fraudulent and inequitable venture, as is charged in the complaint, it appears to us that this is rather an outstanding* reorganization of valuable property, with which the overwhelming majority of bondholders, who are now stockholders, seem perfectly satisfied. The only persons complaining are holders of $11,100 bonds, and their complaint is not well founded in fact or in law. Stock in the newly organized corporation is still available to them should they decide to join with the other bondholders in accepting their share of the stock. The decree of the superior court dismissing the complaint for want of equity is affirmed.

Affirmed.

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


author: Mr. Justice Dove

text:
    Carson-Payson Company, Appellant, v. Peoria Terrazzo Company, Appellee.
    Gen. No. 9,114.
    Opinion filed January 18, 1937.
    Rehearing denied February 20, 1937.

      Miller, Elliott & Westervelt, of Peoria, for appellant; Eugene R. Johnson and Donald Gr. Beste, both of Peoria, of counsel.
    Hunter, Kavanagh & McLaughlin, of Peoria, for appellee.
   Mr. Justice Dove

delivered the opinion of the court.

The plaintiff herein is a plumbing and heating company and on December 6, 1932, was engaged in carrying out the provisions of a contract to install certain plumbing at the Woman’s Reformatory at Dwight, Illinois. The defendant is a corporation and was engaged, at the same time, in carrying out the provisions of a contract it held to lay a terrazzo floor in some of the rooms of said reformatory. Emory Rhodes was another contractor and some of the defendant’s employees had removed some boards belonging to Rhodes, which had been used by him in a plasterer’s scaffold in the dining room and had piled them in a corridor which opened off the dining room. This corridor was seven or eight feet in width and about 30 feet long. Coit 8. King was a plumber, in the employ of the plaintiff and in the course of his work in going from one part of the building to another his most direct and convenient route led through this corridor. On Dec. 6,1932, as he was walking along the side of this pile of lumber, some of the boards toppled over upon him, breaking both bones of his right leg and as a result thereof he was incapacitated for 17 weeks. Both the plaintiff and defendant companies were subject to the Workmen’s Compensation Act of this State and the plaintiff paid compensation to King, amounting to $339.75. Thereafter this suit was brought by the plaintiff under section 29 of the Workmen’s Compensation Act (Ill. State Bar Stats. 1935, ch. 48, U 229; Jones Ill. Stats. Ann. 143.44) iyhich gives to an employer who has paid compensation to an injured employee a right of action against a third party when the injury for which compensation was paid was caused under circumstances creating a legal, liability for damages to such third person and not proximately caused by the negligence of the employer or his employees.

The pleadings consisted of a complaint and answer which raised two issues of fact, viz.: first, was the defendant guilty of the negligence charged, and second, was King, the injured employee, in the exercise of due care for his own safety upon the occasion in question. These issues were presented to a jury and at the conclusion of all the evidence the defendant moved for an instructed verdict. The court reserved its ruling upon this motion and the cause was submitted to the jury, resulting in a verdict finding the defendant guilty and assessing the plaintiff’s damages at $339.75.

Thereafter the trial court granted the motion upon which he reserved his ruling* and rendered judgment, notwithstanding the verdict in favor of the defendant and against the plaintiff in bar of the action and for costs of suit. From that judgment the record is brought to this court for review.

It is insisted by counsel for appellee that the complaint is fatally defective in that there is no allegation therein to the effect that appellant was free from contributory negligence and that such defect was properly raised by a motion for an instructed verdict at the close of all the evidence. In support of this contention counsel calls our attention to the case of Filippi v. Cole, 262 Ill. App. 108. That case holds that a declaration which stated a cause of action for wrongful injuries to plaintiff’s employee and alleged ultimate facts showing* that the injured person, at the time of the injury, was an employee and that an award had been made by the industrial commission in favor of such employee and against plaintiff, the amount of the award and that the injury was not proximately caused by the negligence of the employer, was sufficient, when challenged by a general demurrer. That case also holds that the right of action against a third party under section 29 of the Workmen’s Compensation Act is the employee’s cause of action transferred to the employer and in City of Taylorville v. Central Illinois Public Service Co., 301 Ill. 157, it was held to be incumbent upon the plaintiff to prove facts creating a legal liability of the third party and resulting damages just as the employee would have been called on to make such proof if his right of action had not been transferred to the plaintiff.

Conceding that the complaint in the instant case was defective in that there was no allegation to the effect that appellant was free from contributory negligence, that defect was not objected to in the trial court and under the provisions of section 42 of the Civil Practice Act, which provides that all defects in pleadings, formal or substantial, not objected to in the trial court are waived, the sufficiency of this complaint cannot, for the first time, be challenged in this court. Appellee, in the trial court, never filed any motion in the nature of a demurrer to dismiss the complaint. It never filed any motion in arrest of judgment, did not question the sufficiency of the complaint in its answer and did not urge any defect in pleading as a reason in support of its motion for judgment notwithstanding the verdict. A motion for a directed verdict is in the nature of a demurrer to the evidence and does not reach a defect in the complaint. Smith v. Redman, 244 Ill. App. 434; Sell v. Fisk, 191 Ill. App. 194; Klofski v. Railroad Supply Co., 235 Ill. 146. Furthermore, counsel for appellee and the trial court both treated the complaint as sufficient in this respect inasmuch as the record discloses that the instructions offered by the defendant, appellee below, and given by the court, told the jury, not only once but several times, that proof of due care on the part of the plaintiff, as well as of King, was a material allegation of plaintiff’s complaint and that unless such allegation was proven by a greater weight of the evidence, the jury should find the defendant not guilty. Although the complaint did not formally allege that the plaintiff, appellant here, was in the exercise of due care for the safety of its employees at the time King was injured, counsel for appellee and the trial court both assumed that such allegation was in the complaint and the error therefore was a harmless one.

In the brief of counsel for appellee, wherein is set forth the statement of the propositions to sustain the judgment of the trial court, it is not contended that the evidence was insufficient to sustain the verdict but in the course of counsel’s argument it is insisted that the testimony of King, upon cross-examination, disclosed that he might have stepped upon something on the floor which dislodged the pile of lumber and caused it to fall. King’s testimony on both direct and cross examination was to the effect that he did not touch or bump against this pile of lumber and was unable to state what caused it to fall upon him. Whether he was in the exercise of due care just before and at the time he was injured was a question of fact for the jury to be determined from all the evidence and from all the facts and circumstances properly in evidence and not from an answer to one question from which the jury might be justified in concluding that it was possible that the pile of lumber toppled over because King might have stepped on something which caused it to become dislodged. The evidence upon the question of negligence must also be considered as a whole and in connection with all the facts and circumstances in evidence. The negligence charged in the complaint was that appellee, by its employees, carelessly and in a wilful and wanton disregard of its duties piled this lumber in the corridor in a negligent and careless manner and allowed the same to remain in that condition. The evidence disclosed that Emery Rhodes was the plasterer contractor and he owned this lumber and had been using it as part of a scaffold in the dining room, and when he had finished with it, appellee’s employees, under the direction of appellee’s foreman, removed it and placed it in the corridor. The boards were 2 x 10s or 2 x 12s, all approximately 16 feet long and to many of them a considerable quantity of plastering had adhered. The evidence is further that the floor of the corridor was rough concrete and strewn with rubbish and the scaffold boards, when removed to the corridor, were either piled up or thrown upon this rubbish. There is evidence in the record that appellee’s employees piled them in either two or three separate piles, each pile being approximately three feet high. There is other evidence to the effect that these boards were not piled in separate piles but were, as one witness expressed it, “just thrown in the corridor and piled up like you would pile your fingers together.” Mr. King, however, testified that as he passed along the corridor just before he was injured, he glanced at the pile of boards, observed them before they fell and they seemed to him to be piled evenly and as such boards were customarily piled and that they then appeared to him, to be safe. The evidence is further that this pile of boards was in the same condition at the time of the accident as when placed in the corridor by appellee’s employees. From a careful reading of all the evidence, we think it fairly tends to prove the allegations of the complaint, both as to the charge of negligence and of due care and those issues were properly submitted to the jury under proper instructions from the court. There is no complaint that the instructions were erroneous in any respect or that the court erred in its rulings upon the admission or rejection of evidence. This court therefore being of the opinion that the motion of appellee at the close of all the evidence should have been denied will enter the judgment here which the trial court should have entered.

Section 68 of the Practice Act, Ill. State Bar Stats. 1935, ch. 110, 196; Jones Ill. Stats. Ann. 104.068, provides that if a party in whose favor a verdict is rendered shall assign error in the Appellate Court upon the order of the trial court entering* judgment notwithstanding the verdict and the Appellate Court shall be of the opinion that the trial court erred in so doing, that then the Appellate Court shall reverse such order and shall order or enter judgment in accordance with the verdict of the jury, unless it shall appear that there was error in the case that would have entitled the party in whose favor the judgment notwithstanding* the verdict was entered, to a new trial if such judgment had not been entered by the trial court, in which case a new trial shall be ordered. In appellant’s notice of appeal, appellant asked this court to enter this order and inasmuch as the record discloses no error which would have entitled appellee to a new trial and being of the opinion that the verdict of the jury is not manifestly against the weight of the evidence, the judgment and order of the trial court will be reversed and judgment entered in this court in favor of the plaintiff and against the defendant for $339.75 and costs of suit in the trial court and also in this court.

Judgment reversed and judgment here.


author: Mr. Justice Wolfe

text:
    Rockford Trust Company, Defendant in Error, v. Frank S. Regan et al., Plaintiffs in Error.
    Gen. No. 9,059.
    Opinion filed January 18, 1937.
    Rehearing denied February 20, 1937.
    Frank S. Regan, of Rockford, and Robert W. Besse, of Sterling, for plaintiffs in error.
    Early & Early, for Diamond Osborne Oil Co.
   Mr. Justice Wolfe

delivered the opinion of the court.

On June 9, 1933, the Rockford Trust Company of Rockford, Illinois, filed a suit in the circuit court of Winnebago county, against Frank S. Regan and others to foreclose a deed of trust signed by the defendants and secured by real estate in said county. The defendant filed a demurrer to the bill, which was overruled and they then filed their answer. On the trial of the case, the court found the issues in favor of the plaintiffs and entered a decree of foreclosure and sale. The abstract does not show the date of the decree, but an examination of the record discloses the same was signed and filed in the clerk’s office on January 19,1934. A writ of error was sued out of this court and the record filed on January 18,1936. Plaintiffs in error filed their abstracts and briefs April 15,1936. The Diamond Osborne Oil Company, one of the plaintiffs, filed its limited and special appearance to the jurisdiction of the court and moved the court to dismiss the writ of error herein, or appeal, because the decree sought to be appealed from was entered January 19, 1934, and more than one year has elapsed before the filing of the record in this court. Suggestions and counter suggestions in favor and against this motion to dismiss have been filed by the interested parties.

This suit was instituted and filed under the old Practice Act, that is, prior to January 1, 1934. On January 4, 1934, the Rockford Trust Co., and others, entered their motion in said court that all proceedings in the above and entitled cause should-not be governed by the Civil Practice Act of January 4, 1934, but should continue under the former Practice Act. On January 5, 1934, the court entered an order that the proceedings in said cause should continue under the old Practice Act.

It is the contention of the plaintiffs in error that this order gives them the right to sue out a writ of error any time, within two years, from the date that the decree was entered, while the defendants in error contend that all appeals must be governed by the new Practice Act.

Rule One of the Supreme Court is as follows: “All provisions of the Civil Practice Act with respect to review in civil proceedings by the Supreme or Appellate Courts shall apply to orders, determinations, decisions, judgments or decrees entered by trial courts on or after January 1, 1934. All suits in which a summons has been issued prior to January 1, 1934, but in which no pleadings have been filed by either party prior thereto, shall be governed by the Civil Practice Act. The provisions of the Civil Practice Act with respect to service of process issued on or after January 1, 1934 (sections 6. 10, 13-19,) appearance (section 20,) and trial practice (sections 48-73) shall apply to proceedings instituted prior to January 1, 1934, and not on trial prior to that day. Except as provided by this rule, or by written stipulation of the parties, or by order of the court, upon notice and motion, proceedings instituted prior to January 1, 1934, shall not be governed by the Civil Practice Act. ’ ’

Rule 28 of the Supreme Court provides: 11 The provisions of the Civil Practice Act and the rules of this court referring to notice of appeal, appellant and appellee shall, to the extent applicable, include writ of error, plaintiff in error and defendant in error in criminal cases and in civil cases where writ of error is preserved as a method of review. If a writ of error be improvidently sued out in a case where the proper method of review is by appeal, or if appeal be improvidently employed where the proper method of review is by writ of error, this alone shall not be a ground for dismissal, but if the issues of the case sufficiently appear upon the record before the court of review, the case shall be considered as if the proper method of review had been employed. ’ ’

Rule 29 in part is as follows: “No petition for an order granting leave to appeal from the trial court shall be entertained by the Supreme or Appellate Court unless made within one year after the entry of the order, decree, judgment or other determination complained of.”

In the case of Great Northern Refining Co. v. Jeffris Lumber Co., 308 Ill. 342, 346, the Supreme Court uses this language: “Where it is sought to have a case reviewed by the Appellate Court the assignment of error as prepared and presented, stands as the declaration of the plaintiff in error. The suing out of a writ of error is the beginning of a new suit.” International Bank v. Jenkins, 107 Ill. 291; George v. George, 250 Ill. 251; Cass v. Duncan, 260 Ill. 228. Under the old Practice Act, an appeal was not considered a new suit, but a continuation of the proceeding below. Section 74, subsection 1 of the new Practice Act, Ill. State Bar Stats. 1935, ch. 110, H 202; Jones Ill. Stats. Ann. 104.074, is: “Every order, determination, decision, judgment or decree, rendered in any civil proceeding, if reviewable by the Supreme or Appellate Court of this State by writ of error, appeal or otherwise, shall hereafter be subject to review by notice of appeal, and such review shall be designated an appeal and shall constitute a continuation of the proceeding in the court below. Such appeal shall be deemed to present to the court all issues which heretofore have been presented by appeal and writ of error.” It will be noted that the above section expressly provides the method to be pursued by the parties in order to have this case reviewed by the higher court, and the Statute expressly provides that it constitutes a continuation of the proceedings in the court below.

The decree of the trial court in the present case was entered January 19, 1934, which was after the present Practice Act went into effect. The order of the trial court in proceeding under the old Practice Act applied only until the final decree or order of court was signed.

It is our conclusion that the writ of error in the present case was not the proper remedy, but this would not be fatal to the plaintiff in error’s rights, as it could be considered by this court as an appeal from the trial court, if the same had been presented in the statutory time. The rule of court expressly provides that all appeals shall be filed within one year from the time of the final order or decree of trial court. The records show that this writ of error was not filed within the statutory period, therefore, this court is without authority to pass upon the merits of the same.

The motion to dismiss the writ of error should be and is hereby sustained.

Writ of error dismissed.


author: Mr. Justice Woles

text:
    Otto Patton, Appellee, v. Washington Insurance Exchange and Suburban Auto Insurance Company, Appellants. Mary Doubet Cassell, Administratrix of the Estate of Bruce Bair, Deceased, Appellee.
    Gen. No. 9,107.
    Opinion filed January 18, 1937.
    Rehearing denied February 20, 1937.
    Clarence W. Heyl, of Peoria, for appellants.
    L. O. Eagleton and George W. Hunt, both of Peoria, for appellee Otto Patton; William L. Eagleton, of counsel.
   Mr. Justice Woles

delivered the opinion of the court.

This appeal involves a creditor’s bill brought by-Otto Patton, complainant-appellee, against the Washington Insurance Exchange, Suburban Auto Insurance Company, and Bruce Bair as defendants. The original bill was filed on February 18, 1927, and a decree entered by the circuit court of Peoria county, in favor of the plaintiff on April 21, 1936. The complaint is in the usual form of creditor’s bill, alleging that on November 3, 1926, the plaintiff recovered a judgment against Bruce Bair for the sum of $4,000 and cost of suit; that the same was for a personal injury received by Patton in a collision between the cars of the plaintiff and said Bruce Bair; that an execution was issued on said judgment; that the sheriff returned the same indorsed, “No property found”; that the Washington Insurance Exchange had in its possession, or under its control, some evidence of indebtedness or insurance policy or other chose in action; that the complainant was injured as the result of the negligence of Bruce Bair, one of the defendants; that at the time there was a contract of indemnity liability insurance in force, whereby the Washington Insurance Exchange became liable for all, or some part of the amount for said damages. The bill prayed for discovery and for judgment against the defendant in favor of the plaintiff.

The Washington Insurance Exchange filed its answer to the complaint, in which every allegation in the bill was denied, and specifically that the Washington Insurance Exchange had in its possession, or under its control, any assets, property or dioses in action belonging to Bruce Bair. To this answer, the complainant filed a replication. Before the case was tried, Bruce Bair died intestate, and Mary Doubet Cassell was appointed administratrix for his estate. She filed an answer, admitting certain allegations in the bill of complaint, and a replication was filed to this answer.

During the course of the proceedings, an amended and supplemental bill was filed by the complainant, making the Suburban Auto Insurance Company defendant. It was alleged that the Washington Insurance Exchange had' entered into an insurance agreement with the subscribers of the Suburban Auto Insurance Underwriters, in which they assumed all risks and liability on policies of the Washington Insurance Exchange.

The Washington Insurance Exchange and the Suburban Auto Insurance Company filed their answer to the amended and supplemental bill, in which they admitted the reinsurance agreement, but both denied there was any liability against them, or either of thém by virtue of the claim of the complainant, as set forth in his original bill.

The case was referred to the master in chancery on the 14th day of February, 1929, and the report was filed on March 26, 1934. The master found the equity in favor of the complainant and recommended a decree in conformity with his findings. Objections were filed to the master’s report, which were overruled. The objections were ordered to stand as exceptions in the trial court, and the same were overruled, and a decree entered in favor of the complainant in the sum of $5,890 and costs of the suit assessed against the defendants.

It is first insisted by the appellants that the trial court erred in not finding that the Washington Insurance Company had in good faith withdrawn from the defense of the case of Otto Patton against Bruce Bair, when the said Bruce Bair had failed to co-operate with the insurance company in defense of the suit, as required by said Bair in the policy of insurance.

The records in this case show that Heyl and Heyl, attorneys of record in the Patton v. Bair case, withdrew from the case and had nothing further to do with it, and a default judgment was taken against Bair in the personal injury suit; that Bair was not present on the day of the hearing. It seems to us the only question pertinent to the issues in this is, did the defendant Insurance Company, in good faith direct their attorneys, Heyl and Heyl, to withdraw from the case?

It is insisted by the appellees that the court erred in admitting the evidence, tending to show the circumstances surrounding the withdrawal of Heyl and Heyl from the personal injury suit. We think the court properly admitted this evidence, as anything that was said and done between the parties would be permissible to show the good faith of the insurance company in withdrawing from the case. There can be no question but that Heyl and Heyl wrote their client Bair that he should, in pursuance of the terms of the policy, come to their office on October 18, 1926, to have a conference with them and to have his deposition taken. The notice further stated, the hearing was set for October 25, 1926; that the case would have to go to trial and the attorneys could not proceed without him. This notice was sent by registered mail, and the return receipt shows that it was received on October 15, 1926, by Mrs. Bruce W. Bair. There is no actual proof that Bruce Bair received this notice, but this shows that Heyl and Heyl, as such attorneys, were in good •faith, attempting to defend the suit and they desired Bair’s co-operation. Whether Bair did, or did not, receive this notice, seems to us to be unimportant for it was Bair’s duty to keep in touch with his attorneys in regard to his own lawsuit. The evidence clearly shows that he neither appeared to take his deposition, nor on the day the case was set for hearing, nor when it was finally heard.

Paragraph 3 of the policy introduced in evidence contained numerous things that the insured must do in case of an accident, one is: “It is expressly understood and agreed that failure on the part of the insured to comply with any one or all of the said provisions herein contained within the time provided, shall render such claim null and void.” Paragraph 4 provides, “The assured when requested by the Exchange shall aid in effecting settlements, securing evidence, the attendance of witnesses and in prosecuting appeals. . . .” The language in the policy in question was the same as in the policy in the case of Schneider v. Autoist Mut. Ins. Co., 346 Ill. 137. The facts in the Schneider case and the principles of law involved are the same as in the case we are now considering. In the Schneider case, the evidence of the refusal of the insured to cooperate with the insurance company in the trial, was clearer and stronger than the present case, but the principle involved was the same and we think the law, as announced by the Supreme Court in that case, is conclusive in this. The court after discussing the facts says: “This is a garnishment proceeding, and it is elementary that plaintiff in error could not recover against defendant in error, if Allen could not do so. In the instant case the policy provided that the assured, Allen, should aid the insurance company in securing evidence and in procuring the attendance of witnesses in any claim against him which was covered by the policy. The evidence shows that the only witness who knew about the accident was the assured, Allen, and he refused to go and testify on the trial. He was notified upon such refusal on two occasions that the insurance company would not defend and that it would withdraw from the case. There was no duty resting upon the insurance company to cancel the policy, as it might cover other accidents during its life and it had not expired at the time. The condition of the policy requiring co-operation on the part of the assured in the defense of the action brought against him by the injured party is one of great importance. Without the presence of the assured and his aid in preparing the case for trial the insurance company is handicapped and such lack of co-operation must result in making the action incapable of defense. The action of Allen in refusing to go to New York on the trial of the case there prevented the insurance company from making any defense. Obviously he could not recover in a suit on the policy, and neither can the plaintiff here. ”

There are other assignments of error in the case, but it is our opinion that the complainants have failed to show that they have a just claim against the insurance company and we have considered only the one assignment of error.

The decree of the circuit court of Peoria county should be and is hereby reversed.

Decree reversed.


author: Mr. Justice Wolee

text:
    Myrtle Rawson, Appellee, v. John Hancock Mutual Life Insurance Company, Appellant.
    Gen. No. 9,129.
    Opinion filed January 18, 1937.
    Rehearing denied February 20, 1937.

      Miller, Elliott & Westervelt, of Peoria, for appellant.
    George Z. Barnes, of Peoria, for appellee.
   Mr. Justice Wolee

delivered the opinion of the court.

Myrtle Rawson, who will hereinafter be designated as plaintiff, brought a suit in assumpsit against the defendant, John Hancock Mutual Life Insurance Company, who will hereinafter be designated as defendant, to recover on an insurance policy issued by the defendant to plaintiff’s husband, July 18,1927. The amended declaration was filed January 30, 1935, consisting of three counts. In the first count the plaintiff alleged that the defendant on July 18, 1927, issued its life insurance policy on the life of William H. Rawson, for the sum of $1,000; that insured died June 6,1933; that immediate notice of death was given according to conditions of policy and due proof furnished; that the insured kept and performed the terms and conditions of the policy, etc.

Count two alleges the issuance of the policy; that the insured kept, performed and complied with all the terms of the policy up to and including the quarterly premium due April 18, 1933; that the premium was allowed to go unpaid and thereafter the nonforfeiture options on said policy came into effect; that the surrender value of said policy on April 18,1933, was sufficient to carry the policy in force for the full amount as a primary and extended insurance for the period after April 18, 1933; that the insured died within the period of 90 days, to wit, June 30, 1933; that the demand of the plaintiff for the full amount of the policy amounted to and was an election according to the terms of the said policy to exercise Option “C” of said policy; that the insured otherwise had complied with the terms and conditions of said policy.

Count three consisted of the common counts. “The defendant filed a plea of General Issue, except as to $7.65 tendered; also a plea of Tender with payment into court of $7.65 and court costs to date, being $7.00 paid-up insurance, six cents post mortem dividend thereon, and 59 cents accrued interest from June 6, 1933 to February 6, 1935. Defendant also gave notice of special defenses under the plea of general issue, in substance that the insured failed and neglected to pay the premium due April 18, 1933, and that no one paid it for him when it became due or within the period of grace provided in said policy; that the period of grace for the payment of the premium due April 18, 1933, had long since elapsed and passed, prior to the date of the death of the insured on June 6, 1933, and that by reason of the failure, neglect and refusal of the insured, or anyone to pay said premium due April 18, 1933, for him within the period of grace provided in said policy, the policy lapsed and became mill and void and of no effect prior to the date of the death of the insured.

“Also special notice of defense is, that the insured on June 10, 1932, borrowed from the defendant the sum of $95.00 ; that on October 18, 1932, the premium then due in the sum of $10.74 was automatically, under the terms of said policy, paid and charged as a loan against said policy; that on January 18, 1933, the quarterly premium then due on said policy in the sum of $10.74 was automatically paid and charged as a loan against said policy, making’ the total loan against said policy $116.48; that the interest upon said loan, figured to June 6, 1933, the date of the death of the insured, amounted to the sum of $5.71, maldng the total indebtedness against said policy $122.19; that the cash surrender value of said policy on April 18, 1933, the last date to which premium on said policy was paid, amounted to $126.25, leaving a balance of only $4.06 after the payment of the indebtedness against said policy; that said sum of $4.06 was insufficient to pay the quarterly premium due April 18,1933, and that the insured did not, nor did anyone for him, or on his behalf, cause the premium due April 18, 1933 to be paid, and that under the terms and provisions of said policy, the $4.06 remaining of the cash surrender value was applied by the defendant to the purchase of paid-up insurance on the life of William H. Eawson, which said sum was sufficient to buy a paid-up policy for the sum of $7.00 which together with post mortem dividends and interest, was tendered to the plaintiff.”

The case was submitted to the court without a jury and after hearing the evidence and arguments of counsel, the trial court found the issues in favor of the plaintiff and against the defendant and rendered judgment on his findings in the sum of $877.81, as the amount due under the policy. From this judgment the defendant appeals to this court.

It appea'rs from the stipulation, evidence and exhibits, that there was very little, if any, dispute about the facts in the case. It was stipulated by the parties to the suit that William H. Eawson, the insured, applied for the policy, which was issued to him on July 18, 1927. The policy provides for the payment of the annual premiums of $41.69. The first was to be paid on delivery of the policy and a payment of yearly premium on or before the 18th of July, of each succeeding year, until the death of the insured. ‘ The insured elected to pay the premiums quarterly in the sum of $10.74, but it appears from the policy that it was issued on the basis of an annual premium of $41.69, and that the anniversary of the issuance of the policy was the 18th of July of each succeeding year. There is no dispute relative to the issuance of the policy, the time of the death of the insured, nor the failure of the insured or anyone for him to pay the premium that was due on April 18, 1933.

The policy provides that in case the insured does not make his payments of the premium when due, he has certain options which he can invoke that are under the heading, “Non-Forfeiture Options,” which are as follows: “After two full annual premiums shall have been paid hereon, and if the payment of any subsequent premium or installment shall be in default more than thirty-one days, then:

“Option A. — Without action on the part of the holder, the policy will be continued for its value in participating paid-up life insurance (without disability or double indemnity benefits) which will have a yearly increasing surrender value in no event less than that required by law; or

“Option B. — If the holder so elect, the policy will be terminated and the surrender value paid in cash with the written assent of the person to whom it is made payable; or

“Option 0. — Upon written request by the holder filed at the Home Office of the Company within ninety days from the due date of the premium in default, the policy will be continued at its face amount including any outstanding additions and less any indebtedness to the Company hereon or secured hereby, for its value in participating extended term insurance (without loan privilege or disability or double indemnity benefits) dating from said due date. Such insurance will have a decreasing surrender value expiring with the extension term. ’ ’

It is the contention of the defendant that the insured, “Having failed to pay the premium due April 18,1933, within the time provided by the policy sued on, and having failed to exercise Option ‘B’ or ‘C’ prior to his death, then the Insurance Company, under the terms of said policy, was authorized to, and did, exercise Option ‘A’’ by purchasing paid-up insurance in the amount of $7.00, which amount was tendered to the beneficiary together with interest thereon, and costs, and thereafter paid into court for the benefit of the plaintiff. ” “ That plaintiff could not under the terms of said policy exercise Option ‘ C ’ subsequent to the death of the insured, and the filing of the claim for the face of the policy did not amount to an exercise of Option ‘C’.”

The plaintiff’s case is clearly set forth in her petition and it is not necessary to restate it here.

Both plaintiff and defendant have filed numerous cases to sustain their contention. The defendant has cited the case of McDonald v. Columbian Nat. Life Ins. Co., 253 Pa. 239, 97 Atl. 1086, as sustaining the contention that the right to exercise the Option B or 0 in the policy is personal to the insured and no one can exercise either of these options after the death of the insured. The court, after discussing the options that were available to the insured in case of failure to pay the premiums when due, continues as follows: “The policy by its terms lapsed after 30 days’ default in payment of premium, and, under the Massachusetts Statute, automatically became a paid-up life policy for $760.00. This was by operation of law, and not from affirmative action of either party. The insured sought in vain to have it reinstated, but never requested, that its cash value be used to purchase extended insurance. By the policy such options are given to the insured, and, in our opinion must be exercised by him, especially that with reference to the purchase of extended insurance on his life. It is no more possible to procure valid life insurance on a dead man than valid fire insurance on a burned building. And, as in this case such extended insurance was neither sought for nor obtained during the life of the insured, it cannot be secured later. The option was personal to him, and cannot be exercised after the rights and liabilities of the parties have been fixed by his death. Unless the insured elects to take extended insurance the right thereto is lost.”

In her brief the appellee suggests that the Supreme Court of Pennsylvania did not adhere to this rule in the case of JesJce v. Metropolitan Life Ins. Co., 113 Pa. Super. Ct. 118, 172 Atl. 172. An examination of that case discloses that it was decided on an entirely different state of facts from the McDonald case, and also materially different from the case we are considering. We are aware that there are other courts which have not adhered to this rule, but it is our conclusion the options contained in the present policy were personal to the insured and could not be exercised by anyone after his death.

As to whether the defendant was authorized under the terms of the policy to exercise Option “A” by purchasing paid-up insurance for the plaintiff, the opinions of our sister States are not in accord. Our attention has not been called to any case where our Supreme or Appellate Court has passed upon this question. In the case of Michigan Mut. Life Ins. Co. v. Mayfield, 121 Ky. 839, 90 S. W. 607, a suit was brought on an insurance policy upon which the premium had been paid up to July 1, 1905. Insured died July 17, 1905, but failed to pay the premiums due July 1,1905. The policy provided: “Paid-up Insurance. — If the payments are not made as provided herein, then in every such case the company shall not be liable for the payment of the insured sum, and this policy shall cease and determine, except, only, that after premiums shall have been paid for three or more full years, if default be made in the payment of any premium thereafter, and there be no indebtedness on account of this policy, it will be valid as a paid-up nonparticipating policy for a fractional part of the sum insured as shown in the table of paid-up insurance below. . . .

“Extended Insurance. — After the payment of three annual premiums, if default be made in the payment of any premium thereafter, the insured may, by giving written notice to the company within thirty days after such default, elect, in lieu of the paid up insurance provided for in this policy, to have the full amount insured carried as nonparticipating term insurance without further payment of premiums, for the time specified in the table of extended insurance below, provided there is no indebtedness to the company on account of this policy. This nonparticipating term insurance shall be subject to the condition of this policy, except as to the payment of premiums, and if death should occur within three years after the nonpayment of premiums, and during the continuance of the nonparticipating term insurance, there shall be deducted from the amount payable the sum of all premiums with interest, that would have become due on this policy if it had been continued in force as originally intended.”

In holding that the plaintiff beneficiary could recover only the paid-up insurance, the court said, “The theory upon which the appellee sought to recover upon this policy is that it was in full force at the time of the intestate’s death, it being claimed that he had 30 days after he failed to pay the premium in which to elect whether he would take ‘paid-up insurance’ or take ‘extended insurance.’ The appellant questions the correctness of this position, and claims that by the terms of the policy the paid-up insurance feature was automatic, and that upon failure to pay the premium the insured was entitled to paid-up insurance. It is conceded by appellant that after the paid-up insurance took effect the insured had the privilege of substituting extended insurance therefor by giving notice within 30 days after the default in the payment of the premium that he desired to exercise his privilege. The solution of the question depends upon the terms of the policy. The parties were capable of contracting. It is the business of the court to ascertain and enforce the contract. It is expressly provided in clause 6, that the company is not liable for the payment of the insured sum; that the policy shall cease and determine after the premiums have been paid for three years, if default be made in the payment of any premium thereafter. It is then provided that the policy is valid as a nonparticipating policy for a fractional part of the sum insured, this sum to be paid on the death of the insured. This provision is automatic in character. When the insured failed to pay the premium, the liability of the company was for that fractional part of the sum insured, as shown by the table of paid-up insurance printed on the policy. It is not necessary that the insured should do anything as a prerequisite to the right to paid-up insurance. By the eighth clause of the policy the insured has the right to give written notice to the company within 30 days after the default in the payment of the premium, and in lieu of the paid-up insurance provided for in the policy to have the full amount insured carried as nonparticipating term insurance, without further payment of premiums for the time specified in the table relating to extended insurance. The right under this clause of the policy is optional with the insured. He can substitute extended insurance in lieu of paid-up insurance, if he desires. However, after the default in the payment of the premium, until he exercises this option, his rights are determined by the clause of the policy which provides for paid-up insurance.

“It is insisted, however, as the insured has 30 days in which to apply for extended insurance, that the policy for the full amount remains in force until the expiration of 30 days. This contention is in the face of the plain terms of the policy. To take this view of it, we would have to hold that the policy remains in force for 30 days after default in the payment of premiums, although it is expressly provided that the company is not liable for the payment of the insured sum after default in the payment of the premiums, but only for a paid-up policy for a fractional part of the sum insured. The policy for the full amount did not remain in force after default in the payment of the premium. If we so held, we would say that the clauses intended to fix the rights of the parties upon the default of the payment of the premium did not become operative until 30 days thereafter, and that the appellant carried the risk for 30 days without compensation. Either the clause providing for paid-up insurance or the one for extended insurance became operative and in force upon the default of the payment of the premium, as both of the clauses could not be in force at the same time. As the paid-up insurance clause automatically went into force upon the default in the payment of the premium, the insured could not substitute the extended insurance in lieu thereof without making the election to which reference has been made. As the insured did not make the election, his personal representative cannot do so.”

We have quoted at length from this opinion because the facts are practically the same as the case now before us, and the law as stated by that court is applicable. It is our conclusion that under the terms of the policy in question, the defendant insurance company had the right to, and did, exercise Option “A” of the policy of insurance.

The plaintiff seriously insists that the defendant was indebted to the insured more than $10.74, which was the quarterly premium on the policy, and therefore, the company should have used that to pay the premium for another quarter and kept the policy in full force and effect. They arrive at this conclusion, that by the admission of the defendant, the cash surrender value of the policy was $4.06, and they further contend that there was an apportionate part of a dividend amounting to $8.19 which was due insured, and the two sums equalled $12.25, or more than enough to pay the premium due April 18, 1933. The plaintiff introduced in evidence the resolution of the board of directors of the defendant company, which was passed on November 14, 1932. It provided for a dividend for policies, “which shall be in force on their respective anniversaries in 1933. ” The anniversary of the policy in question is the date that it was issued; namely, July 18. This policy was not in full force on that date and was not entitled to participate in any dividends. Therefore, it was not entitled to have this amount applied on the payment of the past due premium.

The trial court erred in finding’ that the defendant was liable for the face value of the policy and entering judgment for $877.81, but should have found that the plea of tender of the defendant was valid and all to which the plaintiff was entitled was the $7 paid-up insurance with costs, etc.

The judgment of the circuit court of Peoria county is hereby reversed and cause remanded.

Judgment reversed and remanded.