author: Mr. Presiding Justice Gridley

text:
    Calogero Oscar Rubinelli, Appellee, v. Envoy Building Corporation et al., Defendants. Appeal of Clyde F. Frazier et al., Appellants.
    Gen. Nos. 35,216, 35,217.

      Opinion filed December 29, 1931.
    Bippus, Ross, Burt & Reeve, for appellants; Bobert C. Pierce, of counsel.
    Shulman, Shulman & Abrams and Gallagher & McDevitt, for appellee; Vincent G. Gallagher and Meter' Abrams, of counsel.
   Mr. Presiding Justice Gridley

delivered the opinion of the court.

The two appeals, here consolidated for hearing, are from a decree of the superior court of Cook county, entered March 19, 1931, which as to said appellants is contrary to the findings and recommendations of a master in chancery to whom the cause was generally referred to take proofs and report his conclusions.

Complainant’s original bill was filed on November 20, 1928. Demurrers thereto were sustained, as were demurrers to an amended bill. The cause was tried upon complainant’s second amended bill, filed March 7, 1929, by which he sought the rescission of a sale to him by the defendant, Envoy Building Corporation, of its apartment hotel property located at No. 5633 Kenmore avenue, Chicago (written contract therefor executed on May 24, 1928, consummated on-June 19; 192-8), as well as the cancellation of a two-years’ lease of a certain bungalow apartment in the building (made by the Envoy Corporation to the defendant, John E. Edmunds, one of its directors, prior to the consummation. of said sale) and the cancellation of a certain written contract (made about June 19, 1928, between complainant and Ruth K. Frazier, wife of Clyde F. Frazier) as to her management of the hotel building for him for the period of one year, unless in the meantime he should sell the property, or in the alternative •for a decree for damages against defendants; all upon the grounds of an alleged conspiracy between certain defendants to defraud complainant in his said purchase and of the alleged false and fraudulent representations of Clyde F. Frazier, a salesman employed by the two Branigars, as to the value of the hotel property and the extent of the occupancy thereof by tenants and the amounts of rentals received, upon which representations complainant, as alleged, solely relied in making said purchase.

During the hearing before the master it appeared that on June 1, 1929, complainant, pursuant to an exchange contract, conveyed the hotel property to a woman named Cara and, hence, was unable to reconvey the same to the defendant, Envoy Corporation. During the progress of the hearing it also appeared that on November 21, 1929, the defendant, John E. Edmunds, died, and on December 6, 1929, the court ordered that his widow, Christine Edmunds, and his married daughter, Fern Edna Wallace (his only heirs-at-law and next of kin) be made parties defendant to the bill without prejudice to the proceedings before the master. On Jannary 25, 1930, they filed their answer, denying that complainant was entitled to any relief.

The theory of defense of appellants (Frazier and the two Branigars), before, they had knowledge that complainant had conveyed the property to Cara, as appears from their respective answers (filed July 2, 1929) and their positions taken before the master, was in substance that the Branigars were the real estate brokers for the Envoy Corporation for the selling of the property on commission, that the details of the negotiations resulting in the sale were conducted solely by Frazier, their salesman; that neither they nor Frazier entered into any conspiracy as charged; that Frazier merely communicated to complainant in good faith information, concerning the value of the property and the rentals realized therefrom, which he had received from the seller and which he believed to be true, and advised complainant of the source of his information ; that the information when so given was true; that complainant did not solely rely upon said information or representations but through an agent or attorney made an independent investigation; that neither the Branigars nor Frazier had any knowledge of the existence of the Edmunds lease at the time of the execution of the contract of May 24, 1928; that Frazier did not learn of it until a day or two before the contract was consummated on June 19, 1928; that immediately prior thereto Frazier informed complainant of the lease, but the latter with knowledge of it consummated the purchase of the property; that the contract with Mrs. Frazier, as to the management of the hotel, was made at complainant’s request about the time he consummated the purchase of the property and was not part of any scheme to defraud him as charged; that the Branigars had nothing whatever to do with the contract; and that appellants were in no way liable to complainant for any damages claimed to be suffered by him in making the purchase. After appellants had knowledge of complainant’s conveyance of the property to Cara they made the further defense before the master and before the court that there were no grounds for equitable relief against any of them, because (1) a rescission of the sale of the hotel property could not be decreed as complainant had voluntarily put it out of his power to reconvey the property to the Envoy Corporation and the parties could not be placed in statu quo, and (2) complainant’s claim for damages, on account of the alleged conspiracy and the alleged false and fraudulent • representations of Frazier as to the value of the property and its rental, was a matter for determination solely by a court of law. On it being urged in substance by complainant that, as his bill • sought equitable relief for the cancellation of the Edmunds lease and of Mrs. Frazier’s management contract with complainant, the court in addition to granting this relief could also take jurisdiction of the entire' subject matter and adjudicate the question as to whether appellants were liable in damages to complainant, appellants urged in reply that no grounds whatever for equitable relief to complainant existed, because (a) he was no longer interested in having* the Edmunds lease canceled as he had conveyed the hotel property to Cara, and (b) the management contract by its terms was already at an end, complainant having made said conveyance to Cara. It was provided in said contract, introduced in evidence by complainant, that “if you (Bubinelli) sell said hotel at any time before my (Mrs. Frazier) year’s period expires, this contract is to then be at an end without further liability on your part or my part.”

Among the many findings in the master’s report (dated January 19, 1931) are the following:

“99. That the defendants, Branigar Bros., were agents of the Envoy Building Corporation in the sale of the premises and the information upon which the representations of their salesman, Clyde F. Frazier, was based was given them by the representatives of said building corporation and was not known by them or their said salesman, Frazier, to be false, and said Branigar Bros, and said Frazier are not liable in damages to the complainant, and the second amended bill shopld be dismissed as to them.
“100. That the conspiracy charged has not been proven. . . .
“109. That complainant is entitled to a decree for damages against the building corporation for $8,000 on account of the purchase of said building and for a decree in the sum of $13,225.71 on account of loss of rents, making a total of $21,225.71.”

In the decree the court ordered that “the exceptions of the several defendants to the master’s report be overruled and that complainant’s exceptions be sustained, and that the master’s report, except as it is modified herein by findings which are different from the master’s findings and conclusions, is in all other respects approved and confirmed as modified.” The court made findings substantially contrary to the master’s findings, Nos. 99 and 100 as above set forth, and further found, inter alia:

That prior to May 24,1928, the Envoy Building Corporation was an Illinois corporation and the owner in fee of the property; that Charles L. Wallace and John E. Edmunds were its principal stockholders and directors, and the managers of its business; that Wallace died in October, 1928, prior to the commencement of the present action, leaving him surviving’ his widow, Fern Edna Wallace, a daughter of Edmunds; that during the hearing before the master Edmunds died, leaving him surviving his widow, Christine Edmunds and said Fern Edna Wallace, as his only heirs-at-law; that the Branigars are real estate brokers, doing* business in Chicago as Branigar Brothers, and that Frazier has since 1927 been a real estate salesman, employed by them as'sales manager; that by the contract of May 24, 1928, complainant agreed to purchase the property of said corporation for the total price of $370,000, of which he paid down as earnest money the sum of $10,000; that the building was 9 stories in height and had 72 apartments and 2 bungalow-apartments on the roof; that the property was incumbered by a first mortgage of $280,000 and a junior mortgage of $11,200, both of which the buyer agreed to assume; that the building had been furnished with suitable furniture at a cost of $47,000, upon which there remained unpaid on May 24,1928, an indebtedness of $36,139.62, secured by chattel mortgage, which indebtedness and mortgage the buyer also agreed to assume; that the balance of the purchase price was to be paid by the buyer (complainant) when the deal was consummated and he received a deed; and that said deal was consummated on June 18, 1928, and possession given to complainant.

£ £ 12. That when the contract was signed the deposit of $10,000 by complainant as earnest money was delivered to Branigar Bros., . . . and that upon the closing of the deal on June 18, 1928, $6,250 of said $10,000 was paid over to Branigar Bros., as commissions for negotiating the deal and acting as brokers in connection therewith.

“14. That three days after the closing of the deal, on June 21, 1928, Frazier as manager delivered to complainant a copy of the rents’ schedule, which was in use prior to and at the date of said contract of May 24, 1928, and that said schedule showed, among other things, the bungalow being rented at $300 per month, being the same bungalow which was occupied by Edmunds on an alleged lease for two years at $85 per month, and stated that the total rental was $79,050.

“15. That the representations of Frazier, and of Edmunds as officer and director of the Building Corporation, with reference to the annual income of the premises being not less than $79,000, and as to the monthly and .annual expenses, and that the premises were 100 per cent rented, were false and known to be false when made, and were made with the object and intent of inducing complainant to purchase the premises, and to cheat and defraud him out of the money he then invested in the premises; . . that Branigar Bros, received out of the money, so obtained as a result of the fraud so practiced by Frazier, Edmunds and the Building Corporation, under the guise of brokers’ commissions for effecting said fraudulent sale, the sum of $6,250, . . . which said sum thus received is legally and equitably that of complainant and ought to be refunded to him.

“16. That about the time complainant was induced to purchase the property, Christine Edmunds, wife of John E. Edmunds, was placed in charge of the premises to fill up vacancies, and that she did fill up the various apartments in the hotel with personal friends who moved out upon the consummation of said deal, by means whereof complainant was greatly deceived.

“17. That the premises never yielded a rental of-$79,000 per year and that the income did not exceed $60,000 per year; that while it was represented to complainant that the monthly rental at the date of the execution of the contract was $6,200, the actual rental for June, 1928, was $5,484.85, and there was no material change in the income of the premises thereafter; and that complainant was also deceived in the annual expenses, which were greatly in excess of what the representations were. . . .

“18. That the representations as to the income of the premises, the expenses and net income thereof and the occupancy thereof were material representations of existing facts, which were known to the defendants last aforesaid to be false when made and were made for the purpose of inducing complainant to so act that they would receive benefits; that complainant relied on these representations and believed them to be true, was deceived thereby and sustained damages by reason thereof; and that the defendants hereinafter named should compensate complainant for the damages sustained by him in the amounts hereinafter stated.

“19. That complainant sustained damages in the amount of $8,000 in the value of the property, because of the fraudulent representations as to the annual income therefrom, and also sustained damages in the sum of $13,225.71, in actual loss of rent between the amount represented and the amount received, making a total of complainant’s losses, as a result of the aforesaid fraudulent representations in the sum of $21,225.71; and that he is entitled to recover the same from the defendants, Clyde F. Frasier, Envoy Building Corporation and the estate of John E. Edmunds, deceased.

“22. That Branigar Bros., having received the $6,250, as commissi mis, out of the $10,000 earnest money deposited by complainant, have by that ratified and confirmed the fraudulent acts and representations of their sales-manager, Frazier, by reason whereof they should not retain any spoils of their fraud and should return and refund to complainant the $6,250, so wrongfully received by them.

“23. That said Christine Edmunds received out of complainant’s money, paid over to the Building Corporation, the sum of $10,000 without any consideration; and that the $10,000 received by her are corporate funds which should be returned by her for the benefit of complainant to apply on the loss sustained by him and on the judgment to be herein entered against the defendants.”

And the court in the decree ordered and adjudged:

That complainant recover from defendants, Envoy Building Corporation and Clyde F. Frasier, the sum of $21,225.71, plus interest thereon at the rate of 5 per cent from January 19, 1931, the date of the master’s report; that execution issue, etc.; that complainant recover from Frank W. and Harvey W. Branigar, trading as Branigar Bros., the sum of $6,250, and that execution issue, etc.; that complainant recover from Christine Edmunds the sum of $10,000, and that execution issue, etc.; that upon any payments being made by said Branigar Bros, or Christine Edmunds on said respective judgments against them, “such payments may be credited in reduction of the judgment lien entered against the Envoy Building Corporation and Clyde F. Frazier; ’ ’ that Christine Edmunds and Fern Edna Wallace “shall account herein for all of said John E. Edmunds’ estate coming into their possession, control or knowledge,” and that said Envoy Building Corporation, its officers, directors and stockholders, shall also account herein to complainant “for any of its funds in its or their possession or control, or heretofore coming into its or their possession, control or knowledge,” so that the property and assets of said Building Corporation, and of the estate of said Edmunds “may be applied towards the payment of said money decree herein entered against them,” etc.

After considering the pleadings and the evidence in the present case, and reviewing the briefs and arguments of opposing counsel, we are of the opinion that the court erred in entering the decree or respective judgments against Clyde F. Frazier and the two Branigars. We think that the master was right in holding in substance that none of them was liable in this proceeding to complainant and in recommending that complainant’s said second amended bill be dismissed as to them. By the bill complainant sought a rescission of his purchase of the hotel property upon the grounds of an alleged conspiracy to defraud him and of the alleged fraudulent representations of Frazier, the agent of or salesman of Branigar Bros., brokers in the deal. When, as appeared on the hearing before the master, complainant affirmed the said purchase by selling the property to a third party on June 1, 1929 (nearly a year after he had taken possession of it), we think that he forfeited his right, if ever he had such, to have said purchase rescinded by a court of equity. The parties could not be placed in statu quo. By his bill he further sought money damages, because of said alleged conspiracy and said alleged fraudulent representations, and also the cancellation of the Edmunds’ lease of the bungalow apartment in the building and the cancellation of the one-year’s contract he had made with Mrs. Frazier for her management of the building for him. After complainant’s sale of the property to said third person he was no longer interested in having the Edmunds’ lease canceled, and by the sale Mrs. Frazier’s contract with him, according to its terms, was ipso facto canceled. After said sale complainant had no grounds for relief in a court of equity. All he then had was a claim for damag’es on account of said alleged conspiracy and said alleged fraudulent representations, and this claim was cognizable only in a court of law, where appellants, if they so elected, could have the issues tried before a jury. We think these holdings' are sustained by many adjudicated cases of the Supreme Court of this State, among which may be mentioned: Fisher v. Burks, 285 Ill. 290, 294, 295 (citing Smith v. Brittenham, 109 Ill. 540, 551; Farson v. Fogg, 205 Ill. 326, 344, 345); O’Donnell v. Henley, 327 Ill. 406, 411; Stackpole v. Schmucker, 225 Ill. 502, 506, 507; Bell v. Anderson, 292 Ill. 605, 613; Toledo, St. L. & N. O. R. Co. v. St. Louis & Ohio R. Co., 208 Ill. 623, 632; Brauer v. Laughlin, 235 Ill. 265, 273, 274.

And we are further of the opinion that the evidence was insufficient under the law to establish that ‘appellant Frazier was guilty of the fraudulent representations as charged. In Gillespie v. Fulton Oil & Gas Co., 236 Ill. 188, 198, it is said: “A misrepresentation which will warrant a court of equity in setting aside a contract must contain the following elements: First, its form must be a statement of fact; second it must be made for the purpose, of inducing the other party to act; third, it must be untrue; fourth, the party making the statement must know or believe it to be untrue; fifth, the person to whom it is made must believe in and rely upon the truth of the statement; sixth, the statement must be material.” As we view the present transcript it appears by a clear preponderance of the evidence that the representations of Frazier to complainant, as to the value of the hotel property, its occupancy by tenants and the rentals received, were made in good faith and upon information received from the Building Corporation, which he believed to be true, and, further, that complainant did not solely rely upon said representations, but made investigations concerning them through an agent before signing the contract of May 24, 1928. And we agree with the master in his holding that no conspiracy to defraud complainant, as charged, was proven by the evidence.

And we think that the portion of the decree, which provides for complainant’s recovery from the two Branigars of the commission of $6,250, received by them out of complainant’s first payment of $10,000, is erroneous. The theory of the decree as to them is, apparently, that, although they were not guilty of any fraudulent representations or fraudulent acts, still, by receiving said sum as commissions, they thereby ratified and confirmed the fraudulent acts and representations of' their sales manager, Frazier, and are in equity bound to return said amount to complainant as “spoils of their fraud.” It clearly appearing that there is no equity in complainant’s bill as against Frazier, there is also no equity therein as against the Branigars.

Our conclusion is that as to the appellants, Clyde F. Frazier and Frank W. and Harvey W. Branigar, the decree appealed from should be reversed and the cause remanded with directions to dismiss complainant’s second amended bill as to them and each of them. Such will be the order.

Reversed and remanded with directions.

Keener and Scanean, JJ., concur.


source: Caselaw Access Project

license: Public Domain

text:
    Harry Altschuler, Appellee, v. Herman Sandelman et al., Defendants. In re Petition of Chicago Trust Company, Appellant.
    Gen. No. 35,278.
    Opinion filed December 29, 1931.
    Deerees, Buckingham, Jones & Hoeeman, for appellant; Don Kenneth Jones and Vincent O’Brien, of counsel.
    H. J. Rosenberg, for appellee.
   Mr. Presiding Justice Gridley

delivered the opinion of the court.

In a proceeding to foreclose a second mortgage the court, on March 23, 1931, sustained complainant’s general demurrer to the intervening petition of the Chicago Trust Company, the trustee named in the first trust deed or mortgage, and, upon its election to stand by the petition, dismissed it for want of equity. This appeal followed.

Complainant’s bill, filed February 18, 1931, prayed for an accounting, a foreclosure and the immediate appointment of a receiver. It is in the usual form and alleged in substance that on November 22, 1928, Sandelman and wife, then the owners of the improved premises in question and being indebted in the sum of $17,500, executed and delivered certain notes, — the last one maturing on June 1, 1930; that to secure the notes they on the same day executed and delivered their trust deed conveying the premises to the Independence State Bank, as trustee, which deed was recorded on December 1, 1928; that complainant is now the legal holder and owner of all of the notes, none of which, although past due, has been paid; that by the terms of the deed the rents and profits of the premises were pledged to secure the indebtedness, interest, costs and solicitors’ fees, and that the grantors, upon the filing of any foreclosure bill, waived all right to the possession and to the income of the premises and agreed that without notice a receiver might be appointed; that the premises are scant security for the payment of the indebtedness, and that complainant fears, unless a receiver be appointed, he will lose a part of the indebtedness; and that one Fred Friedman, a bachelor, is the present owner of the equity of redemption. There is no mention in the bill of the existence of any prior mortgage and petitioner, first mortgagee, was not made a party to the bill.

On the following day (February 19), upon complainant’s motion, the court ordered that the Cook County Trust Company be appointed receiver, conditioned upon complainant filing a bond in the sum of $200 (which was approved and filed), and said company as receiver took immediate possession of the premises. In the order it is recited that the trust deed provides for the appointment of a receiver, that it is a “junior incumbrance,” that default has been made in the payment of the indebtedness secured thereby, that the premises are inadequate security, and that said Friedman is the owner of the equity of redemption and has had due notice of this application. And the court further ordered that all persons in possession as tenants pay rents to the receiver; that those refusing so to do surrender possession to it, and, if this is not done, that it take all necessary legal steps to remove them, etc.; that from the rents received it pay all taxes, keep the building insured, and also pay prior incumbrances and the interest thereon as the same falls due; and that all moneys received by it, less the outlays herein directed and its reasonable expenses, be retained by it subject to the further order of the court.

On February 26, on the receiver’s petition the court ordered that it be given leave to employ a named firm of attorneys as its solicitors. From the petition it appears that the premises are located at 4908-14 West Chicago avenue, Chicago, and are improved with a building containing five stores and two apartments.

On March 16, the court, upon the motion of the Chicago Trust Company, as trustee, ordered that it be given leave to file instanter its intervening petition “for a rule upon the receiver to surrender the property in its possession, and demanding certain rents,” and that complainant and the receiver be given leave to plead to the petition within five days.

In said intervening petition, verified by a vice president of petitioner,' it is alleged in substance that on October 26, 1922, Abe S. Chavin, and Marion his wife, being indebted in the sum of $25,000, executed and delivered their 20 promissory notes, numbered 1 to 20 inclusive, payable to the order of themselves and by them indorsed; that four of the notes were each for $750, of which note No. 1 became due on April 26,1923, and the others every six months thereafter; that 15 of the notes were each for $500, of which note No. 5 became due on April 26, 1925, and the others every six months thereafter; that note No. 20 was for $14,500 and becomes due on October 26, 1932; that all notes bear interest at the rate of six per cent per annum until maturity and at the rate, of seven per cent.per annum after maturity; that the instalments of interest, evidenced by coupon-notes, are payable on the 26th days of April and October in each year; that to secure the payment of the indebtedness Chavin and wife, on October 26, 1922, executed and delivered their trust deed whereby they “conveyed, mortgaged and warranted to petitioner, as trustee,” the premises described in complainant’s bill, “together with all rents, issues and profits which should after the making of said trust deed accrue from the premises, which said rents and profits were by said trust deed likewise presently assigned and transferred to petitioner as trustee”; that the trust deed was recorded on November 9, 1922 (here set Out in full); that each and all of the principal notes and coupon notes “were sold and delivered to the Western and Southern Life Insurance Company, and the proceeds of the loan evidenced by the notes were duly disbursed and paid to or upon the order of Abe S. Chavin”; and that the trust deed “became and was and is a valid and subsisting first and prior lien and claim upon the premises therein described. ’ ’

It is further alleged in substance that said Sandelman and wife became the owners of the premises and executed and delivered their trust deed as set forth in complainant’s bill, and which deed was given to secure their notes as therein set forth; that the Sandelman trust deed “was and is by its terms expressly subject to the first and prior lien of the trust deed” to petitioner, as trustee; that the Cook County Trust Company, appointed by the court as receiver of the premises under complainant’s bill, has been acting as snch, and has been, and is, collecting the rents of the premises ; that on April 26,1930, there became due and payable principal note No. 15, in the sum of $500, and that on October 26, 1930, there became due and payable note No. 16, in the sum of $500, and also interest notes in the total face amount of $495, but that no provision for the payment thereof was made by Chavin and wife or by Sandelman and wife, or by anyone in their behalf, and that default was made in that regard, which defaults “still continue”; that on April 26,1931, there will mature, under the terms of petitioner’s trust deed, principal note No. 17, in the sum of $500, and interest notes aggregating $480; and that every six months thereafter, to and including October 26, 1932, various principal and interest notes will also mature.

It is further alleged that under the provisions of petitioner’s trust deed and on account of said defaults, it, as trustee, “became and is entitled to the possession, management, operation and use of the premises, and is entitled to collect, take, use and enjoy the earnings, income, rents and profits therefrom”; that petitioner’s rights in this regard “are prior and superior to the rights of all persons, including the Cook County Trust Company, receiver herein”; that the premises “can be managed and operated at substantially less cost and expense by petitioner than by the receiver herein, or by any other receiver or court administration”; that “the net rents, derived and to be derived from the premises, under the administration of the receiver, are and will be insufficient to remove said defaults prior to April 26, 1931, and that the net rentals from the premises are insufficient to pay the sums required to be paid under said trust deed at the times that said sums become due and payable, and that the right of petitioner to the possession, operation, management and control of said premises is a. substantial one and vital to the preservation of the security intended to be effected by petitioner’s trust deed”; and that “it has heretofore elected, and does now elect, to take possession of said premises, to manage and operate the same, and to take the rents, issues, income and profits thereof hereafter to accrue, which possession and which rents, issues, income and profits it demands.”

The prayer is that petitioner’s “rights and interests as above set forth be determined and adjudged”; that upon such determination the court “direct that the receiver forthwith surrender to petitioner the premises and all rents accruing* therefrom and collected by the receiver subsequent to the filing* of this petition”; that the petition “stand as petitioner’s demand for such rents, issues and profits, as well as for the enforcement of its other rights in the premises”; and that petitioner may have such further relief as equity requires.

The theory of petitioner is in substance that, as first mortgagee, its right to the possession of the premises, and to collect the rents and profits thereof, is absolute upon its assertion of that right; that the court erred in sustaining complainant’s general demurrer to the petition, — the well pleaded allegations therein being admitted by the demurrer; and that, if upon a hearing the facts as alleged in the petition are proven, the court should direct the receiver (appointed at the instance of a second mortgagee) to surrender possession of the premises to petitioner and permit the exercise by it of its said right. The theory of complainant (as second mortgagee) is in substance that, while if petitioner (as first mortgagee) were in actual possession no receiver might lawfully be appointed upon complainant’s bill to foreclose its second mortgage (in the absence of fraud or mismanagement on petitioner’s part), yet a receiver having been appointed on complainant’s bill, and having taken possession prior to the assertion of petitioner’s said right to possession, the latter has lost that right, and it can only ask permission of the court to have the receivership extended as to it.

In Rohrer v. Deatherage, 336 Ill. 450, 454, 455, it is said (italics ours):

“In this State a mortgagor is the legal owner of the mortgaged premises against all persons except the mortgagee and his assigns. (Citing cases.) "While a mortgage conveys a title as between the mortg’agor and the mortgagee, it is only a qualified title as security for the creditor during the existence of the debt, and the mortgagor is regarded as the owner of the land for all beneficial purposes, subject only to the rights of the mortgagee. (Citing cases.) After condition broken, however, the mortgagee is, as between him and the mortgagor, the owner of the fee. (Citing Ladd v. Ladd, 252 Ill. 43, and other cases.) The mortgagor has the right to sell or make leases of the premises, and his grantee or lessee will have the right of possession until default in the terms of the mortgage, but the mortgagor cannot make a lease of the mortgaged premises which will give greater rights than he himself possesses or will interfere with the right of the mortgagee to enter for condition broken. After condition broken, ejectment may be maintained by the mortgagee against the mortgagor or those to whom he may have assigned the equity of redemption. (Taylor v. Adams, 115 Ill. 570.) Upon default in the condition of the mortgage the mortgagee has. the right to possession against the mortgagor, his grantee, lessee, or anyone claiming under him by -any right. In such case the mortgagee has several remedies which he may pursue to enforce the payment of his debt. He may sue the mortgagor in assumpsit for a judgment upon the personal obligation; he may sue in equity for the foreclosure of the mortgage; or he may recover the possession of the mortgaged property by an action of ejectment. These remedies are concurrent or successive, as the mortgagee may deem proper, and he may pursue any two or all three of the remedies simultaneously. (Citing cases.) ”

In the cited Ladd case, supra, it is said (page 46, italics ours): “While the mortgagor is the legal owner of the mortgaged premises against all persons except the mortgagee (Seaman v. Bisbee, 163 Ill. 91), the mortgagee, as against the mortgagor, is held in this State, as under the common law, to be the owner of the fee, entitled to all the rights and remedies which the law gives to such owner. (Citing cases.) ”

In High on Receivers, 4th Ed., sec. 679, the writer says (italics ours):

“Under the English practice, when there are several mortgages of different priority upon the same premises, the first mortgagee, being vested with the legal title and the right to immediate possession, is called the legal mortgagee, and all others are equitable mortgagees or incumbrancers. And the doctrine of the English Court of Chancery, announced in strong terms by Lord Eldon, and which has also been recognized and enforced in this country, was that, as against a prior mortgagee in possession of the property under his mortgage, a receiver would never be granted in behalf of subsequent mortgagees, while anything remained due to the prior mortgagee under his incumbrance. In such cases, the only remedy open to the second or equitable mortgagee is to pay off the prior incumbrancer and redeem from the lien of his mortgage. The rule is based upon the unwillingness of courts of equity to interfere with the legal title or with possession under it, and their disinclination to substitute another security for that for which the mortgagee contracted. The courts refuse, therefore, to grant a receiver in this class of cases, or to interfere with the receipt of the rents and profits by the prior mortgagee in possession, since such interference would virtually have the effect of dispossessing him.” (Citing among others the English case of Berney v. Sewell, 1 Jac. & W. Rep. 647.)

This rule, as regards a first mortgagee in possession, has been followed substantially in decisions of courts of review in this State. (Springer v. Lehman, 50 Ill. App. 139, 143, citing Bolles v. Duff, 35 How. Pr. (N. Y.) 481, 483; Peterson v. Lindskoog, 93 Ill. App. 276, 281; Van Ness v. Arado, 257 Ill. App. 56, 59; Dickason v. Dawson, 85 Ill. 53, 55; Chicago Title & Trust Co. v. Smith, 158 Ill. 417, 425-6.)

In 3 Jones on Mortgages, 8th Ed., secs. 1937 and 1939, the writer says (italics ours):

“1937. A subsequent mortgagee can not have a receiver appointed to the prejudice of a prior mortgagee to whom something is due, if the prior mortgagee is in actual possession; and whenever an appointment is made, it is without prejudice to the right of any such prior incumbrancer to take possession. (Citing certain American and English cases, including the English case of Berney v. Sewell, supra.) . . . The possession of the prior mortgagee, and his application of the rents to the debt due him, may be as much to the advantage of the subsequent mortgagee as his own would be. If the subsequent mortgagee insists upon •obtaining possession himself, his only course is to redeem the estate from the prior incumbrance by paying it off; . . .” (Citing Trenton Banking Co. v. Woodruff, 3 N. J. Eq. 210, 212.)
“1939. A court of equity not only respects the actual possession of the prior mortgagee, hut is ccmtiousmot to interfere with his rights to take or obtain possession, if he should desire it. . . .” (Citing Beverley v. Brooke, 4 Gratt. (Va.) 187, 209.)

In 1 Wiltsie on Mortgage Foreclosure, 4th Ed., sec. 579, the writer says (italics ours):

“If it appears from the bill that there is a prior mortgagee who is not in possession of the premises, it has been held that the court may, at the instance of subsequent incumbrancers, appoint a receiver in the absence of the prior mortgagee, . . . but such an appointment will, of course, be made without prejudice to the right of the first mortgagee to take possession of the premises at any time he may desire.” (Citing among others the English cases of Bryan v. Cormick, 1 Cox Rep. 422, and Dalmer v. Dashmond, 2 Cox Rep. 378.)

In Berney v. Sewell, 1 Jac. & W. Rep. 647, decided in 1820 and referred to by the writers above mentioned, Lord Eldon said (p. 648, italics ours):

“If a man has a legal mortgage, he cannot have a receiver appointed; he has nothing to do but to take possession. If he has only an equitable mortgage, that is, if there is a prior mortgagee, then, if the prior mortgagee is not in possession, the other may have a receiver, without prejudice to his taking possession;
“If you recollect, in Mr. Beckford’s case (Quarrell v. Beckford, 15 Ves. 377), I went to the very utmost; I said then, that if Mr. Beckford would swear that there was sixpence due to him, I would not take away the possession from him. If there is anything due, I cannot substitute another security for that which the mortgagee has contracted for. . . .
“I remember a case where it was much discussed, whether the court would appoint a receiver when it appeared by the bill that there was a prior mortgagee, who was not in possession; I have a note of that case: there Lord Thurlow made the appointment without prejudice to the first mortgagee’s taking possession; and that was afterwards followed by Lord Kenyon.”

In Bryan v. Cormick, 1 Cox Rep. 422, 423 (cited in 1 Wiltsie on Mortgage Foreclosure, as above, and decided in 1788), it appears that a bill was filed by creditors to have a receiver appointed over certain premises, on which there was a mortgage; that when it was ascertained on the hearing that the mortgagee was not in possession, Lord Thurlow stated that “he could see no reason, if the mortgagee had not thought proper to take possession, why the court should not put a receiver on the estate so as that it should be without prejudice to the mortgagee’s right to obtain the possession,” and that “where a receiver has been appointed of a mortgaged estate, the mortgagee not being brought before the court, the mortgagee must apply to the court for liberty to bring an ejectment,i which is of course,” and that here, “if the receiver is appointed without prejudice to the mortgagee’s right, there could be no objection to it”; and that thereupon his Lordship “ordered that a receiver should be appointed without prejudice,” etc.

In Dalmer v. Dashwood, 2 Cox Rep. 378, 381, 383 (also cited in 1 Wiltsie, etc., as above, and decided in 1793), it appears that the holder of a defaulted annuity, which he was told at the time it was given was the only incumbrance against certain property, ascertained upon investigation that there were five separate mortgages and other annuities prior to his annuity; that he commenced a proceeding for the appointment of a receiver and for an injunction to restrain payment of any of the rents to the mortgagor; that the prior mortgagees were not made parties; and that the defense “was made that a receiver could not be requested until plaintiff redeem the prior mortgages.” The court held (p. 381): “This is the proper application to be made by the plaintiffs under the circumstances of this case. They are not bound either to redeem the prior mortgages or to make them parties to the suit. They come here against the mortgagor for an equitable execution of a judgment at law. A first mortgagee can give notice to the tenants and impound the rents; but a second mortgagee can only come into this court to prevent any part of the rents going into the pocket of the mortgagor. It is true that a receiver cannot be put upon the estate to the prejudice of the first mortgagee; but the order may be made as between the mortgagor and the second mortgagee, without prejudice to the right of the first mortgagee to take possession whenever he thinks fit to do so.” And it further appears (p. 383) that a receiver was appointed “without prejudice to any of the mortgagees or other incumbrancers, whose mortgages or incumbrances were prior to the plaintiffs ’, from taking possession of the said estates, or any part thereof, in case they should be advised so to do.”

The two English cases last mentioned are cited and commented upon with approval in Cortleyeu v. Hathaway, 11 N. J. Eq. 39, where it is said (p. 42): “"Where, upon the application of a subsequent mortgagee, a receiver is appointed, it is without prejudice to any prior mortgagee or other incumbrancer, and the receiver will be directed to keep down the interest upon the prior incumbrances.”

We are not advised that the precise question here involved has squarely been decided by the Supreme Court of Illinois, but there are other cases, arising in United States courts, where, under varying facts, the same principles have been enunciated as in said English cases. In Wiswall v. Sampson, 14 How. (U. S.) 52, 64, 65, it is said (italics ours):

‘ ‘ The appointment of a receiver is a matter resting in the discretion of the court; and, as a general rule, in making the appointment on behalf of a complainant seeking to enforce an equitable claim, or a claim which is the subject of equitable jurisdiction, against real estate, it will take care not to interfere with the rights of a person holding a prior legal interest in the property. Thus, where there is a prior mortgagee having the legal estate, the court will not, by the appointment of a receiver, deprive him of his right to the possession; "but, at the same time, it will not permit him to object to the appointment by any act short of a personal assertion of his legal rights, and the taking of possession himself. . . . When a receiver has been appointed, his possession is that of the court, and any attempt to disturb it, without leave of the court first obtained, will be a contempt on the part of the person making it. . . . When, therefore, a party is prejudiced by having a receiver put in his way, the course has either been to give him leave to bring an ejectment, or to permit him to be examined pro interesse suo. . . . And the doctrine that a receiver is not to be disturbed, extends even to cases in which he has been appointed expressly, without prejudice to the rights of persons having prior legal or equitable interests. And the individuals having such prior interests must, if they desire to avail themselves of them, apply to the court either for liberty to bring ejectment, or to be examined pro interesse suo; and this, though their right to the possession is clear.”

In Odell v. H. Batterman Co., 223 Fed. 292, a case before the Circuit Court of Appeals for the second circuit, it is decided in substance (as appears from syllabi warranted by the opinion):

“A receiver, appointed to take charge of property of a tenant, cannot maintain possession of the leasehold against the landlord, where the tenant had breached the lease, so that the landlord was entitled to declare a forfeiture thereof.
“Where a court of competent jurisdiction has taken possession of property through a receiver appointed by it, no other court can acquire jurisdiction over the same property, or render any judgment which interferes with the possession, unless the court shall grant leave to sue its receiver; but the court appointing the receiver has ancillary jurisdiction to determine all questions relative to the possession of such property, even if it would have no original jurisdiction of those questions.
“It is an abuse of the discretion of the court appointing a receiver for a tenant to refuse permission to the landlord to sue in another court, or to apply to the court appointing the receiver, to recover possession of the property from the receiver for the tenant’s breach of the lease, which entitles the landlord to forfeit it.”

And the court in its opinion in the Odell case said (italics ours):

(p. 297) “In this case the alleged breach of the lease occurred more than seven weeks before the appointment of the receivers. The landlord’s right to end the tenancy was therefore complete, if the allegations are supported by the facts, before the receivers came into possession of the property. The receivers have no greater rights in the property than the insolvent corporation itself possessed. The appointment of the receivers in no wise abrogated the contract. And if under the lease, after breach, the landlord is entitled upon giving proper notice to the immediate possession of the property as against the tenant, he certainly must have the same right as against the receivers. Receivers are not appointed to keep persons out of their rights. The law does not tolerate so rank an injustice.” (Citing Eyton v. Denbigh, etc. R. Co., L. R. 6 Eq. 14, 16 (1868); Park v. New York, L. E. & W. R. Co., 57 Fed. 799, 802.)
(p. 299) “As we have pointed out in an earlier part of this opinion, the order made by the court below was in effect a refusal to allow the landlord to have his claim adjudicated. The terms of the order clearly indicate that the court below has no intention to allow the receivers to be disturbed in their possession of the property. We think this an abuse of the court’s discretion. The landlord has a right, which the court cannot properly disregard, to have its claim to the possession of this property passed upon and determined, and, if found to be valid, it has a right to be restored to the immediate possession of the property. That right the court must recognize and protect, notwithstanding the existence of the receivers and the creditors.”
(p. 299) “It is not for us here and now to determine whether upon the facts the landlord is or is not entitled to judgment of ouster and to be put into possession of the property. It is enough for the present purpose to know that appellant has stated a good prima facie cause of action, and that no sufficient reason exists for denying’ it the right to sue the receivers as well as the defendant in an action of ejectment.”

After considering the allegations of petitioner’s intervening petition, and reviewing the.authorities as above outlined and other adjudicated cases, we are of the opinion that the court erred in sustaining complainant’s demurrer to said intervening petition and in dismissing it for want of equity. And we do not think that there is any merit in the contention or theory of complainant’s counsel in substance that, because the receiver (appointed at complainant’s instance) took possession of the premises before petitioner (first mortgagee) took steps to- assert its right to the possession of the premises, petitioner has lost that right, and can only have, upon its motion, said receivership extended as to it. Under the authorities' above cited we fail to see that there is any material difference or distinction between the rights of a first mortgagee, in possession of premises prior to an appointment or attempted appointment of a receiver at the instance of a junior mortgagee, and the rights of a first mortgagee not asserted until after a receiver has been appointed and is in possession, at the instance of a junior mortgagee. As we read the authorities such an appointment can only be made without prejudice to the right, of such first mortgagee to the possession of the premises, if he sees fit within a reasonable time to assert that right.

The order or judgment of the superior court, sustaining complainant’s demurrer to petitioner’s intervening petition and dismissing it for want of equity is reversed, and the cause is remanded with directions to the superior court to overrule said demurrer and for further proceedings not inconsistent with the views herein expressed.

Reversed and remanded with directions.

Kerher and S canean, JJ., concur.


author: Mr. Justice Keener

text:
    Charles E. Harding Company, Complainant, v. Charles E. Harding et al., Defendants. Charles E. Harding, Defendant in Error, v. Charles E. Harding Company et al., Plaintiffs in Error.
    Gen. No. 35,023.

      Opinion filed December 29, 1931.
    Rehearing denied January 11, 1932.
    G-lennon, Cary, Walker & Murray, for certain plaintiffs in error; Sidney C. Murray, Marvin A. Jersild and Harold E. Christensen, of counsel.
    Justus Chancellor and Justus Chancellor, Jr., for defendant in error; Justus Chancellor, qf counsel.
   Mr. Justice Keener

delivered the opinion of the court.

This writ of error challenges a decree obtained by Charles E. Harding upon his cross-bill. The complainant Charles E. Harding Company, a corporation, by its amended creditors’ bill, sought to reach certain assets of Charles E. Harding to satisfy a judgment obtained by it and to recover upon accounting from Harding a further sum of $17,947.38. Harding filed a cross-bill against John W. Sener, Erwin J. Feldes, James B. Nelson, Waif red Davis, Stockmen’s Trust & Savings Bank, and others, who were not served with process and did not become parties to the proceedings. Nelson’s death was suggested prior to the entry of the decree but no one was substituted for him. No rule to answer the cross-bill was entered as to Stockmen’s Trust & Savings Bank and no answer was filed by it. By his cross-bill he sought to have set aside certain agreements dated April 4, 1922, between him and Sener, Feldes, Nelson and Davis. The cause was referred to a master to take the testimony and report his conclusions of law and fact. The master filed his report in which he found that plaintiffs in error were not guilty of duress, fraud or overreaching of defendant in error and recommended that the cross-bill be dismissed for want of equity and that a judgment be entered against Harding upon the accounting for $17,947.38. Objections to the report were ordered to stand as exceptions. There was a hearing on the exceptions, which were sustained, and on June 26, 1930, the court entered the decree which this writ of error seeks to have reversed.'

The essential averments of the cross-bill are that for many years prior to March 13,1922, Harding had been engaged in the live stock commission business in Chicago and throughout the territory adjacent thereto; that he employed Feldes, Sener, Nelson and Davis and placed them in positions of trust and confidence in connection with handling and management of the said business; that Feldes had gained his confidence to such an extent that he was intrusted by him with many very important matters pertaining to said business; that Feldes formulated and conceived a plan to secure the said business and properties for himself and others who thereafter confederated with him and assisted him in obtaining from and depriving him of same. That said illegal plan was to compel him by means of misrepresentations, threats, offers of aid, intimidations and promises to enter into a certain agreement whereby he would be compelled to turn over and convey all of his assets, name, good will, the customers and business of Charles E. Harding Company, as well as all the properties of himself and wife, to and for the benefit of a corporation to be thereafter formed, the control of which was to be in the hands of plaintiffs in error, thereby' securing to themselves the benefits, profits, good name, good will and the assets of the business which he had spent his life in securing and building up and which were of the value of not less than $275,000 without paying him therefor or giving him controlling interest in said corporation; that to carry out said illegal purpose and to accomplish said scheme he was caused to attend various conferences at which the plaintiffs in error were present when it was represented by them to him that he was in a terrible situation; that his business was about to fail; that the bank was then ready to force him out of business; that the government was inspecting the commission business at the Chicago Union Stock Yards; that a failure of his business at this time, under the eyes of the government, would be disastrous to the whole industry; that by reason of the aforesaid situation he had placed himself in a perilous position out of which he was liable to be sent to the penitentiary, all of which terrorized him and placed him in such a mental condition that he was unable to think clearly and decipher said illegal scheme; that when this advantage had been gained plaintiffs in error then presented said scheme as the only method by which he could escape from said predicament and save his good name, property and business, and they further represented to him if he would but accept their plan they would see to it that everything would be all right for him; that his business would be secure and he would be protected in the ownership thereof; that they had funds of their own they would put into the business of a sufficient amount to pay all of its indebtedness; that the plan and statements coming as they did from his supposed friends, former employees and the president of the bank with which he had been doing business seemed to offer to his confused mind a bona fide and honest method of meeting the situation and not then realizing that he was the victim of a trap set by his employees and those whom he had trusted, to destroy him and deprive him of his good name, properties, business and reputation, he acquiesced in their request and agreed to sign the said documents and incorporate the said business; that after he had been maneuvered into this position and his consent to incorporate obtained, J. A. Gold, president of the Stockmen’s Trust & Savings Bank, made seeming objections on the part of the bank not to said plan as a whole but only to that part which would give to defendant in error a sufficient amount of the capital stock in said corporation to insure to him the control and management thereof and so advised defendant in error which put him in a way of thinking1 he would have no trouble at any time in buying one of their interests which would give him control of the corporation. That plaintiffs in error then and as the next step in said plan and for the sole purpose of inducing him to enter said trap urged him to accept the said bank’s condition and stated that they were still friends and would continue to be; that they could not run the business without him; that he individually was the life of the business without whom it could not prosper; that it was his business; that he could handle it just as he had always done; that it would have his name; that Feldes made him believe that he (Feldes) was his friend, and that he would vote his stock with him in a manner to protect him in the ownership and management of his business; that he was then terrorized, broken in spirit and confused in mind by these promises and threats and not then having the opportunity to think clearly due to the great amount of pressure brought to bear upon him as aforesaid, and to the additional pressure that was brought to bear upon him by one Stafford, president of the Live Stock Exchange, unless he should acquiesce in said plan he (Stafford) would go before the Live Stock Commission and take the necessary steps to have him expelled therefrom, he agreed to sign the papers, incorporate his business and take all other necessary steps under the direction of plaintiffs in error to accomplish and secure the supposed relief offered him; that thereafter he signed said agreement which is in effect that plaintiffs in error would cause a corporation to be formed with a capital stock of $25,000, bearing the name of Charles E. Harding Company, and would cause to be delivered to defendant in error, free of charge 100 shares of the capital stock of the corporation fully paid and non-assessable; that they were to hold among them, according to their respective interests, the balance of the stock; that none of said stock was to be disposed of by any of the said stockholders until the same was first offered to other members of said corporation; that the said corporation was to take over his business, together with its assets, and was to assume and pay all of his indebtedness and that of the business; that he was to be employed by said corporation for a period of two years at a salary of $6,500 a year; that he was to transfer all of his properties and those of his wife to a trustee to secure the said corporation and those who advanced money in payment of said indebtedness; that he had prepared a trust agreement listing all of his properties and those of his said wife and thereafter signed the same and turned over all of his personal assets, real estate and those of his wife to said trustee; that immediately after the signing of said contract as another step in said illegal plan to deprive him of his properties the said A. J. Gfold, notwithstanding the fact that he had stated that the said Stockmen’s Trust & Savings Bank would refuse to loan him any money upon his assets and business, nevertheless caused said bank to loan money to plaintiffs in error upon the security furnished by the assets of defendant in error placed in the hands of said trustee as aforesaid, and caused the same to be placed in trust in said bank in the name of Erwin J. Feldes as the trustee thereof; that at the time this money was advanced defendant in error had been informed and believed the fact to be true that plaintiffs in error were men irresponsible financially, as well as otherwise, and did not have between them an amount of money in the aggregate of $13,950 and did not have securities upon which to borrow the same and they could not have obtained the loan from said bank without using the assets and business of defendant in error; that immediately upon the incorporation of the business the said bank did accept the note of said corporation in the sum of $15,000; that the said note accepted as aforesaid was given by said corporation to take up the notes of plaintiffs in error which had been given at the time of the creation of said trust fund; that the interest on said note was charged on the books of said corporation to the account of defendant in error; that his properties and income therefrom have been used in payment of said loan, and that said loan though ostensibly made upon the credit of plaintiffs in error, in reality was made upon the credit of the assets and the business of defendant in error and that the money from said loan was used by plaintiffs in error in payment of the capital stock which they received in said company and which gave them the controlling interest therein which money equitably belonged to him and should be used for his benefit and that the said stock so purchased and held by plaintiffs in error is in reality and should be declared by the court as held in trust for him and he should be declared to be the actual owner thereof; that immediately after said corporation had been formed plaintiffs in error immediately took the control of said business away from him and commenced a systematic campaign of discharging against his protest, former employees of hi's, personally friendly to him and his interests and that said discharges were without cause and uncalled for; that they adopted a policy of exclusion toward him, held secret meetings during the latter part of 1923 and during 1924 and determined on the policies of the company at a time when he was not present, notwithstanding the fact that he was a member of the board of directors; that at stockholders’ meetings plaintiffs in error, acting in accordance with their illegal scheme and under a further illeg’al agreement between them and contrary to their representations, pooled their stock and voted in such a manner as to defeat and render his stock of no value and that they have, from the very beginning, banded together against him in the management of the business and in the voting of the stock and have acted contrary to his advice and wishes notwithstanding the fact that he is the largest individual owner of stock in said corporation and that under their management the said business has fallen off from a profit of $10,000 the first year to a loss during this year of $7,000.

That subsequent to the time of the incorporation he learned that in the handling and management of said business plaintiffs in error had engaged in the illegal practice of giving rebates in matters of corn, weights and money to some shippers and of overcharging other shippers in matters of corn and weights for which illegal acts, notwithstanding the fact that he had nothing to do therewith, he was nevertheless responsible under the rules of the Live Stock Exchange, being a stockholder and one of the directors of said corporation; that desiring to protect himself, his customers, the business and his good name, he went to the head of the Live Stock Exchange and reported these unlawful acts on the part of plaintiffs in error; that immediately thereafter plaintiffs in error, without cause and in direct violation of the said contract of employment, discharged him from the employ of said corporation; that plaintiffs in error have caused proceedings to be instituted on July 22, 1924, in the circuit court of Cook county, No. B-111627 (the creditors’ bill in the instant case) for the purpose of securing to themselves the stock in said corporation now belonging to him; that the judgment upon which the said bill is founded was rendered for costs in said superior court injunction proceeding which superior court proceeding was based upon rights claimed under said illegal contract and at the trial in said superior court the charges made therein were not before said court nor adjudicated by it nor was the legality of said contract questioned. The prayer of the cross-bill was that the court declare a trust in favor of defendant in error, order an accounting and that the contracts and agreements of April 4, 1922, be set aside and canceled.

The plaintiffs in error filed an answer denying that they were guilty of any violation of their duties or any violation of trust and confidence; that they were guilty of any duress, constructive fraud or overreaching of the defendant in error or of any unfairness to him or were actuated by any motives other than those of desiring to save the business and to carry it on with suecess; they denied that they ever planned or considered depriving defendant in error of said business or of his property and alleged that the plan proposed, discussed and finally adopted, was fair and honest and a bona fide method of meeting the situation and denied there was any trap set or that Harding was a victim of any trap and they averred that all the matters and things concerning the malting of the Charles E. Harding Company and' concerning the turning over of the said Harding business to the said corporation and concerning the deeding of the assets of Harding other than the said business to Joseph A. Graber, as trustee, and of carrying on the business of the corporation after it was authorized to do business were all set out and considered in full by the superior court of Cook county in certain proceedings therein entitled Charles E. Harding Company v. Charles E. Harding et al., and after a full hearing of the evidence and the arguments of counsel the superior court on April 28, 1924, duly entered a decree wherein all the questions concerning the said new corporation and concerning the rights and interests of the defendant in error and of the said corporation and its stockholders were duly and finally settled and decreed, and they asked the same benefit of setting up the said former adjudication in their answer as if they had duly set up the same by special plea. v

By the decree in the instant case the chancellor found inter alia that the agreements dated April 4, 1922, between the plaintiffs in error and defendant in error were obtained by the plaintiffs in error by taking advantage of the confidence reposed in them by defendant in error while they were in his employ in positions of confidence and trust, and that they were obtained by duress, constructive fraud and the overreaching of defendant in error, and should be returned and restored to Harding, including the right to use his name and the name of Charles E. Harding & Company; that the incorporation and organization of the complainant were in violation of the rights of defendant in error and that the capital stock obtained by the plaintiffs in error in said corporation was obtained by them in violation of the trust and confidence reposed in them by the defendant in error; that the plaintiffs in error should be found and held to be holding said capital stock in trust for the defendant in error; that an accounting should be had between the defendant in error and plaintiffs in error and Joseph A. G-raber, trustee, of all property turned over by the defendant in error to and in accordance with the agreement of April 4, 1922; that plaintiffs in error are trustees of the business of Charles E. Harding and Charles E. Harding Company, acquired by them from defendant in error pursuant to and by means of the agreement of April 4, 1922, and it was ordered that the amended bill filed by complainant Charles E. Harding Company be dismissed for want of equity; that the agreement of April 4, 1922, be set aside, annulled and held for naught; that an accounting be had between the plaintiffs in error and the defendant in error of all property turned over by the defendant in error pursuant to the agreement of April 4, 1922; that the capital stock in the Charles E. Harding Company now possessed by any of the plaintiffs in error belonged by right to the defendant in error subject only to the accounting to be had between the plaintiffs in error and the defendant in error, and the cause was referred to a master in chancery to take the account.

There was no contest as to the creditors ’ bill and no exceptions taken by the defendant in error to the master’s finding with respect to it, except in so far as the issues raised by the cross-bill constitute a defense.

The material facts as shown by the evidence are that in the spring of 1922, defendant in error, then 60 years of age, was and had been for over 35 years in the live stock business, most of the time in the Union Stock Yards of Chicago. In 1920 he employed Erwin J. Peldes as a stenographer and advertising man and placed him in charge of correspondence. Defendant in error had confidence in Peldes and trusted him in every way and finally placed him in charge of the business. Peldes also looked after the financial affairs of the business and accepted and authorized payment of drafts but was not a bookkeeper and made no entries in the books. About the time Peldes entered the employ of defendant in error, James B. Nelson, who was Peldes ’ friend, was also employed by defendant in error. He was given charge of shipments. Sener was Harding’s assistant in the yards and Davis was a butcher stock salesman. Harding had an account with the Drovers Bank, but most of his banking was done through the Stockmen’s Trust & Savings Bank, although he never transacted business with the bank, Peldes always doing* it for him. Defendant in error had one Mansfield and one Pfaelzer as customers. In 1921 both of these men failed, owing him $12,433.31 for drafts drawn and paid, where no stock had been shipped. Because of these losses and money withdrawn by defendant in error for his personal account he became financially embarrassed and was short of cash. Under the rules of the Live Stock Exchange the buyers were not required to pay for their purchases until 11 o’clock of the day following the sale. His daily sales amounted from $1,000 to upwards of $78,000. The proceeds of the sale were sent to the shippers the same day the sales were made either by depositing the cash in the shipper’s bank in Chicago or by checks to the shipper to his home town as he might direct; unless he collected for all sales he had to use his own resources to carry the load which ranged from $500 to over $50,000 a day. Harding testified he had his bookkeeper prepare monthly statements of his business. The statement prepared on March 31, 1922, showed an overdraft at the bank of $42,274.36. He further testified that he examined the statement and determined he needed more money in his business. That about a week before April 4, 1922, he informed Feldes he had to get more money in the business and requested him to get it and if he did he would pay him for it. That evening Feldes and Nelson met at Feldes home where Feldes informed Nelson that defendant in error had $30,000 in checks outstanding and only $5,000 in the bank with which to pay them. The following day Nelson and Feldes went to Bruce Stafford, president of the Live Stock Exchange, an association of commission men, which prescribes rules and regulations for the conduct of its business and laid the matter before him and asked what they ought to do, and Stafford said that he would take the matter up with the board of directors and let them act on it; thereupon Nelson said, “if you do that, Harding is liable to fail for $40,000 or $50,000 and it will ruin all of us, and we might as well quit business.” Stafford then inquired if they could raise the money and Nelson said they could if given time. In this conversation Stafford also said that he was sorry that he had been informed of these facts, because he was a director of the bank. Nelson said, “I came to you as a friend and gave you these facts in confidence and am going to ask you not to say a word until 12 o’clock Saturday, to see if we can raise the money and tide this thing over.” At 12 o’clock Saturday Stafford requested defendant in error to accompany Feldes, Nelson and himself to the bank. Feldes and Nelson had previously informed defendant in error that they had made various unsuccessful attempts to raise money; that the president of the Live Stock Exchange was prepared to call a meeting of the board and have him expelled and that the bank was going to throw ont his checks; that he was already overdrawn at the bank and had no money with which to meet his checks. Stafford, Feldes and Nelson and the defendant in error drove to the bank, where they met Sener. Here he was informed that he had one chance to save his good name and business and unless he consented to the proposition about to be submitted by them his checks would be thrown out on Monday morning and his name and business ruined.

There were three meetings — April 1, 2 and 4, 1922. The first was held at the bank on the afternoon and evening of April 1. Harding, Stafford, Gold, Feldes, Nelson and Sener were present, and it lasted until 8:30 o’clock when Stafford left saying the matter would have to be fixed up in some manner or he would report Harding to the Live Stock Exchange on Monday. All of the others remained until about midnight. Gold at this meeting told Harding that if the money was not in the bank Monday morning Harding’s checks would not be paid. Sunday, April 2, Harding met again with Gold, Feldes, Sener and Davis, and continued the discussion. The proposition proposed was that a corporation be formed to have his name for which he was to have 40 per cent of the stock and the plaintiffs in error the remaining 60 per cent, that he turn over his name, business, farms, home, oil stock and his wife’s inheritance and all of his private holdings, to a trustee. When he objected he was again informed that it was absolutely necessary that that be done in order to satisfy the exchange and the bank. At both these meetings Harding insisted that he have 51 per cent of the stock of the new concern; Gold, however, stated that Harding must give up his control of the business and told Harding if the then outstanding checks were not paid he might lay himself liable to criminal prosecution and that he would certainly be suspended or expelled by the exchange. The final meeting was held at the bank on Tuesday, April 4,1922, and the agreements involved in the instant case were signed. The bank’s statement of the Stockmen’s Trust and Savings Bank account showed that on March 30, 1922, defendant in error’s cash balance was $24,259.43; the following day at the close of business his cash balance was $28,405.55; on April 1, it was $11,913; on April 3, it was $13,017.62 and on April 4, the date of the signing of the agreement it was $18,936.75. The business ran on for the month of April without any change or difficulty, just as it had been doing, without any outside support and all checks paid by the business. Harding completed the deal allowing the corporation in his name to be formed, transferred his business and assets by bill of sale, and the private holdings of himself and wife to the trustee. In the agreement of April 4, 1922, defendant in error acknowledges his liabilities at the close of business on March 31, 1922, amounted to $28,000, and the agreement provides that plaintiffs in error shall form a corporation with a capital stock of $25,000 to be called Charles E. Harding Company for conducting a live stock business, and cause it to issue to Harding 100 shares of its $100 par stock and to become security for the $28,000 net liabilities and that Harding transfer to this corporation the assets of his commission business and convey to Joseph A. Graber, as trustee, his real estate and oil stock, Graber to hold the title and collect the rents from the property and apply the same to discharge the net liabilities, when and as requested by the corporation, and that he shall have power to sell, lease or incumber any or all of the trust property and apply the rents, profits and income of any such sale, lease or disposition of incumbrance in discharge of the net liabilities of the business; and that Harding enter into an agreement with the corporation to work for it as a cattle salesman for two years for $6,500 a year and give all Ms time and efforts to the corporation and not directly or indirectly conduct, aid or assist in any other live stock commission during the period.

As a result of the agreement of April 4, 1922, Harding on the advice of his attorney, executed a Mil of sale, a trust agreement and deeds conveying his property to Q-raber as trustee. A corporation was organized and the books of the old company closed April 30,1922. Feldes borrowed $2,500 from the Stony Island Trust & Savings Bank, where he did business, and $1,000 from Gold on a note signed by himself and wife. Nel.son borrowed money on three insurance policies and from the Stockmen’s Bank, where he did business, and turned over this money and a $700 note in payment of his shares, making a total of $3,750 for 37% shares. Davis and Sener made their payments upon the stock issued to them and it was all deposited in the Stock-men’s Bank to the credit of Feldes as trustee. On May 1, 1922, Feldes turned these funds amounting to $13,950 over to the new corporation. Gold had agreed to carry the business along if the contract was signed and the men showed their good faith by depositing their individual shares in his bank in Feldes ’ trustee account. The new corporation began to do business May 1,1922. The checks of the old company outstanding on May 1, 1922, and the various items wMch the old firm owed were paid by the corporation. The auditors found these liabilities to be $37,323.56 on the last day of April, 1922. An account was opened on the corporation’s books for Harding and an itemized statement of this account showing the debits and credits was received in evidence. These statements showed that Harding still owed the corporation $17,947.38, wMch amount the master found to be due it. Subsequently, on April 11, 1923, Harding filed a written complaint with the Live Stock Exchange against plaintiffs in error charging them with violation of the exchange rules in regard to charges for feed and offered to appear and substantiate his charges. The exchange found nothing wrong in the transactions complained about and dismissed the charges. November 1, 1923, the complainant sent Harding a letter discharging him and stating the reasons therefor. Thereafter he and his son, under his own name, engaged in the live stock business, whereupon the complainant brought suit in the superior court, cause No. 395989, based upon the agreement of April 4, 1922, and the other agreements entered into pursuant thereto, to restrain him from using his name in the business and he was enjoined from doing business under the name of Harding. The costs in that proceeding amounted to $798 and a judgment for that amount was rendered against him. Thereafter on July 22, 1924, the complainant filed its creditors’ bill in the instant case by which it sought to reach certain assets of the defendant in error to satisfy the judgment for costs in cause No. 395989, and to recover from Harding the further sum of $17,947.38. April 1, 1925, defendant in error filed his cross-bill.

The main ground urged by counsel for plaintiffs in error for a reversal is that the issues of duress, constructive fraud and overreaching of defendant in error are barred by the proceeding in superior court cause No. 395989, which will hereafter be referred to as the injunction suit.

From the record it appears that the defendant in error was discharged by the Charles E. Harding Company November 1, 1923; 'that shortly thereafter he engaged under the name of Charles E. Harding & Son in the live stock business at the Union Stock Yards; that thereupon the injunction suit was brought against him and his son to restrain and enjoin them from the use of the name of “Charles E. Harding.” In the bill the execution of the agreement involved in the instant case was alleged and that Harding had in the contract agreed he would not directly or indirectly conduct or assist in any other live stock business in Chicago for the two-year period for which he was engaged by the Charles E. Harding Company. Defendant in error by his answer in the injunction suit denied he had conveyed the exclusive use of the name of Charles E. Harding and that the complainants had the right to exclude him from using his own name. Upon this issue the superior court decreed that Harding be enjoined and restrained from using the name of Charles E. Harding in the live stock business. Plaintiffs in error were not parties to the injunction suit, but practically the same evidence as that upon which relief is here sought was presented. The superior court in the injunction suit found that Charles E. Harding had entered into an agreement in writing with the Charles E. Harding Company whereby he contracted to work for it as a cattle salesman for a period of two years from the date of the incorporation of that company for a salary of $6,500 a year, and ordered and decreed that Charles E. Harding be enjoined and restrained from using in the live stock business the firm name of Charles E. Harding & Son.

A large number of cases have been cited by the plaintiffs in error on the authority of which they claim it was obligatory on the defendant in error, if he claimed the agreement of April 4, 1922, was obtained by duress, constructive fraud and overreaching, that he make such defense in the injunction suit, and having failed to do so he cannot maintain a separate suit for relief on those grounds and that all matters which were or might have been determined in the injunction suit are res judicata. We agree with counsel for plaintiffs in error that the doctrine of res judicata is not a mere matter of practice or procedure inherited from a more technical time than ours, and that it is a rule of elementary and substantial justice of public policy and of private peace which should be cordially regarded and enforced by the courts to the end that rights once established by the final judgment of a court of competent jurisdiction shall be recognized by those who are bound by it in every way wherever the judgment is entitled to respect, and that a judgment of a competent court of jurisdiction upon a question directly involved in one suit is conclusive as to that question in another suit between the same parties. But the defendant in error replies that it must appear either upon the face of the record or be shown by extrinsic evidence that the precise question was raised and determined in the former suit; in other words, that where the former adjudication is relied upon as an absolute bar there must be as between the two actions, identity of parties, of subject matter and cause of action, and in arguing for an affirmance of the decree, counsel says, the questions of fraud now sought to be adjudicated were not put in issue by the pleadings nor decided by the decree and that Feldes, Nelson, Davis and Sener were not parties to the injunction suit. They were, however, stockholders of the corporation and had in fact a vital interest in the outcome of the litigation and it is immaterial that no issue was raised by defendant in error as to the validity of the agreement.

In the case of Hanna v. Read, 102 Ill. 596, 602, it is said that it is not universally true that before an adjudication in a former case can be made available as an estoppel, it must appear that the thing sought to be recovered and the cause of action in both suits be the same; that where some specific fact or question has been adjudicated and determined in a former suit, and the same fact or question is again put in issue'in a subsequent suit between the same parties, its determination in the former suit, if properly presented and relied on, will be held conclusive upon the parties in the latter suit, without regard to whether the cause of action is the same in both suits or not; that this species of estoppel is known to the -law as an estoppel by verdict, and is equally available to a plaintiff in support of his action, when the circumstances warrant it, as when offered by a defendant as a matter of defense; and that, whether the adjudication relied ■ on as an estoppel goes to a single question, or all the questions involved in a cause, the fundamental principle upon which it is allowed in either case is that justice and public policy alike demand that a matter whether consisting of one or many questions, which have been solemnly adjudicated by a court of competent jurisdiction, shall be deemed finally and conclusively settled in any subsequent litigation between the same parties, where the same question or questions arise, except where the litigation is a direct proceeding for the purpose of reversing or setting' aside such adjudication; and on page 605 it is further said: “It is sufficient for the purposes of the rule relating to a former adjudication, when relied on as an estoppel, that the parties be substantially the same. . . .” In Godschalck v. Weber, 247 Ill. 269, 274, it is said: “The doctrine of res judicata extends not only to the questions which were actually decided in the former case, but to the whole controversy, — to all matters properly involved which might have been raised and determined, and to all grounds of recovery or defense which the parties might have presented, whether they did so or not.” (See also Stickney v. Goudy, 132 Ill. 213, 231; Harmon v. Auditor, 123 Ill. 122, 130; South Park Com’rs v. Montgomery Ward & Co., 248 Ill. 299, 312; Bacon v. Reichelt, 272 Ill. 90; Marshall v. John (Grosse Clothing Co., 184 Ill. 421; Singer v. Hutchinson, 183 Ill. 606; Weberpals v. Jenny, 300 Ill. 145; Phelps v. City of Chicago, 331 Ill. 80; Bayer v. Bloch Real Estate Im provement Co., 246 Ill. App. 416; Edmanson v. Best, 57 Fed. 531.) In Harvin v. Blackman, 121 La. 431, 435, the court said:

“Fraud, tainting the plaintiff’s cause of action, is a defense which the defendant is bound to set up when he has opportunity to do so; and, if he neglects to avail himself of this means of defeating the claim made against him, he will be precluded by the judgment from afterwards alleging such fraud.”

Applying the principles thus announced to the facts in the instant case, we are compelled to the conclusion that the legality of the agreement of April 4,1922, was litigated and determined in the injunction suit, or should have been, and therefore the issues of duress, constructive fraud and overreaching of defendant in error in the instant case are barred by the injunction suit and are res judicata of the controversy in the present suit.

Plaintiffs in error have also assigned as error and argued that the agreement was not obtained by duress, constructive fraud or overreaching and that Harding’s conduct subsequent to the execution of the agreement of April 4, 1922, is a complete bar to the relief sought, but in the view we have taken it will not be necessary to discuss those assignments.

The decree of the superior court will be reversed and the cause remanded with directions to dismiss the cross-bill for want of equity and to enter a decree in accordance with the prayer of the amended bill of complaint.

Reversed and remanded with directions.

G-ridlet, P.J., and Scanlah, J., concur.