text:
    Northwest Side Lumber Company, Appellee, v. Lewis Layton, Appellant.
    Gen. No. 30,386.
    1. Injunctions — enforcement of negative covenant in contract of employment on ground of unfair competition. Averments in a bill of complaint for an injunction restraining a former employee of plaintiff from violating a covenant of the contract of employment restricting the defendant’s business activities after leaving plaintiff’s service, to the effect that if not restrained defendant will continue to carry on a general contracting business, contrary to- the agree,ment, “and indulge in unfair competition with your orator, in direct violation -of the terms and conditions of the contract,” held . to present no grounds for injunctive relief because setting out no specific facts constituting unfair competition "and stating only the conclusions of the ¡pleader I'll l'esUBcr~thereoL ~ "
    2. Injunctions — decree "cnjoiningf "breach of restrictive covenant in contract of employment as limited by allegations of bill, A bill of complaint for an injunction restraining a former employee of plaintiff from violating a covenant of his contract of employment restricting his business activities after leaving plaintiff’s service, the allegations of which relate mainly to- engagement in the business of constructing .bungalows and garages. win^ot_suppart_a_decree restraining defendant from- competing- .with plaintiff, in building construction of ajl kinds,
    3. Injunctions — enforcement of covenant of employment prima facie in restraint of competition. Where neither the contract of employment restricting the business activities of the employee after leaving the employer’s service, nor the allegations of a bill of complaint seeking to restrain a breach of such contract, indicate that the employer’s business involves the knowledge or use of trade secrets or confidential information, and the allegations of the bill, in so far as they inferentially allege solicitation of complainant’s customers by the defendant employee, are specifically denied under oath, the contract is prima facie one to restrain competition per se and as such invalid and unenforceable.'
    4. Injunctions — allegations essential to support bill for enforcement of negative covenant in contract of employment prima facie .purely one in restraint of competition. Where, so far as appears from the provisions of a contract of employment restricting the business activities of an employee after leaving the employer’s service, or the allegations of a bill to restrain a breach thereof, the restrictive clauses of the agreement relate solely to competition per se and hence are prima facie invalid, it- is incumbent upon the complainant, in order -to establish their validity, to show that there existed some special circumstances which rendered such clauses in the agreement reasonably necessary for the protection of its business.
    5. Injunctions — enforcement of unconscionable negative covenant. Equity will not enforce a negative covenant in a contract, the provisions of which appear unfair and unconscionable.
    6. Injunctions — sufficiency of bill seeking enforcement of covenant in employment agreement restricting business activities of employee after leaving employer’s service. Where a bill to restrain a breach of a contract of employment restricting the business activities of the employee after leaving complainant’s service did not positively show that the contract was other than one relating solely to competition per se, and in so far as it inferentially alleged circumstances entitling complainant to relief notwithstanding the prima facie invalidity of the covenant sought to be enforced it was met by the denials of a sworn answer and supporting affidavits, it was error to refuse to dissolve a temporary injunction entered upon such bill.
    Interlocutory appeal by defendant from the Circuit Court of Cook county; the Hon. Fbancis S. Wilson, Judge, presiding. Heard in the second division of this court for the first district at the October term, 1925.
    Reversed.
    Opinion filed December 8, 1925.

      Ryan, Condon & Livingston, for appellant; David J. Greenberg, of counsel.
    Archie H. Cohen, for appellee.
   Mr. Presiding Justice Barnes

delivered the opinion of the court.

This is an appeal from an order overruling and denying a motion of defendant to dissolve or modify a temporary injunction entered upon a bill of complaint seeking a permanent injunction against the violation of a contract between the parties. The motion was based upon an answer subsequently filed and certain affidavits.

Complainant was engaged in constructing buildings, particularly garages and bungalows. After defendant had been in its employ for a time they entered into the contract in question. It is one of employment whereby complainant agrees to employ defendant as construction sales manager for one year from January 2,1925, at a compensation of $75 per week, subject to its termination on 30 days’ notice by either party, and defendant in consideration thereof agrees to perform the duties required of him and not engage in any other employment during the term of the contract, and particularly by paragraph 4 of said agreement:

“That at the expiration of the one (1) year term herein provided for, or upon sooner termination of his employment by the said first party, by his resignation, discharge by the said first party or for any other reason, he will not engage in any capacity, in the business of constructing, remodeling or repairing bungalows, cottages, sheds, garages or any other buildings or structures of any kind, nature or description, or in the making or securing of any contracts pertaining to the same, either for himself or for any other person, persons, firm, firms, corporation or corporations, in any territory within a radius of fifty miles from the site of the present city hall, * * * for a period of one (1) year from the time he leaves the employment of the said first party.”

In the event of a violation of this provision defendant also agreed to pay as fixed and liquidated damages $5,000, to secure the faithful performance of which he executed a note to complainant for that sum. By amendment said paragraph 4 was restricted to the construction of frame buildings and structures of the nature referrecTta It is coñeededr Lh^trili' disfégardingsuch restriction the injunction is too broad and in that respect must be modified.

The injunction restrains defendant (1) from interfering with the business of complainant or its agents, servants, etc., in operating the same; (2) from engaging in any capacity in the business of constructing the buildings mentioned in provision 4 of the contract (without regard to said amendment) or in making or securing any contracts pertaining to the same within the radius of territory limited in the contract; (3) from inducing or attempting to induce persons not to negotiate or deal with complainant, and (4) from exhibiting or distributing printed or other matter within the radius aforesaid, or any literature bearing the name of the said defendant in connection with the construction of buildings as described in said contract.

Omitting the formal and less important averments of the bill, those most vital to the claim for relief outside of those referring to the contract are in effect as follows:

That in connection with its lumber business and the construction of buildings generally, of which defendant had entire supervision, complainant was particularly engaged in the construction of garages and bungalows, for which it had a high reputation; that it had a large salaried force in its garage construction department and defendant had charge of all the salesmen therein as well as of collections, advertising, its mailing list and a list of names of owners of vacant property which it had procured and listed as prospective purchasers ; that it advertised by the trade names of “Best Built Garages” and “Best Built Bungalows,” and through such advertising and such lists it was enabled to communicate with prospective customers; that defendant had no experience in the erection of buildings of any kind previous to his employment by complainant, and was trained in complainant’s method of advertising and making contracts; that on April 18, 1925, Without prior notice, as provided for in the contract, defendant left his said employment; that he withdrew said note for $5,000 from complainant’s vault and “sought to procure for himself” (but it is not alleged that he did procure) “valuable data entrusted to his care containing the names of prospective purchasers of garages,” which was missing after he left complainant’s office (but it is not alleged he took it); that thereafter he was instrumental in organizing a corporation under the name of “Lewis Layton Company” to carry on a general construction business including the construction of garages and buildings of all kinds, which subsequently changed its name to “Wolberg-Layton Company,” and that defendant thereby in association with others violated the terms of the contract by carrying on said line of business within such radius; that he employed similar language to complainant’s advertisements by advertising the “Layton Bilt Garage,” and has deliberately “set about to use the said knowledge and experience which he gained while in the employ of your orator in injuring your orator’s business and for the purpose of causing a loss of patronage to your orator and has wilfully and maliciously circulated false statements regarding your orator and its method of doing business without any provocation therefor or justification for such malicious and false statements so that persons who would likely do business with your orator, hesitate and refrain from negotiating with its representatives” (but it is not alleged what these statements were); that defendant has destroyed said note, is not financially responsible, and if not restrained will continue to carry on a general contracting business, contrary to the agreement “and indulge in unfair competition with your orator, in direct violation of the terms and conditions of the contract.”

With respect to the last averment, as there are no specific facts set forth which constitute unfair competition the averment in regard thereto is nothing more than the pleader’s conclusion and hence will be dismissed from consideration. The claim for injunctive relief rests mainly, therefore, if not entirely, upon the fact that defendant breached his contract, which the bill in effect seeks to enforce.

It may be said at the outset that even if we assume the contract is prima facie valid, the relief granted is broader than reasonably necessary for the protection of complainant, for the allegations of the bill relate mainly to garage and bungalow construction and defendant is restrained froñTcTOTlp'Cliog'in buildiñghoji-"-" strñction~of anyfiriad:-- — - ~ "

Before considering the specific averments of the bill it is well to note the nature of the contract itself. It is strictly one of employment containing a covenant against the employee’s competition with his employer within a certain time and radius. Such a contract is distinguishable from one of the sale of good will in which the purchaser is entitled to protect himself against competition by the vendor within reasonable restrictions. After noting this distinction it was said in Herbert Morris, Ltd. v. Saxelby, 1 App. Cas. [1916] 688:

“In all cases such as this, one has to ask one’s self what are the interests of the employer that are to be protected, and against what is he entitled to have them protected. He is undoubtedly entitled to have his interest in the trade secrets protected, such as secret processes of manufacture which may be of vast value. And that protection may be secured by restraining the employee from divulging these secrets or putting them to his own use. He is also entitled not to have his old customers, by solicitation or such other means, enticed away trom him. But freedom from' all competition per se~ap3rl from both these things, however lucrative it might be to him, he is not entitled to be protected against. He must be prepared to encounter that even at the hands of a former employee. * * * That doctrine does not mean that an employer can prevent his employee from using the skill and knowledge in his trade or profession which he has learned in the course of his employment by means of directions or instructions from the employer. That information and that additional skill he is entitled to use for the benefit of himself and the benefit of the public who gain the advantage of his having had such admirable instruction. The case in which the court interferes for the purpose of protection is where use is made, not of the skill which the man may have acquired, but of the secrets of the trade or profession which he had no right to reveal to any one else, — matters which depend to some extent on good faith.”

In Atwood v. Lamont, L. R. [1920] 3 K. B. 571, it was said that considerations of public policy come in and make it necessary for the court to jealously scrutinize agreements of this nature, and that “the practice of putting into these agreements anything that is favorable to the employer is one which the courts have to check. ’’ It further said: “An employer is not entitled by a covenant taken from his employe to protect himself after the employment has ceased against his former servant’s competition per se. * * * An employer may not, after his servant has left his employment, prevent that servant from using his own skill and knowledge in his trade or profession, even if acquired when in the employer’s service.”

Similar contracts of employment where injunctive relief was denied and this doctrine upheld were before the court in Clark Paper & Mfg. Co. v. Stenacher, 236 N. Y. 312; Menter Co. v. Brock, 147 Minn. 407; Sternberg v. O’Brien, 48 N. J. Eq. 370; Samuel Stores, Inc. v Abrams, 94 Conn. 248, and the Saxelby and Lamont cases above referred to.

Considering such contracts in some of these cases the courts lay emphasis on their imposition of unreasonable and unfair restrictions upon the right to labor. In the Sternberg case it was said that before depriving a person of such right or abridging it, the court should consider with the utmost care whether on a careful comparison of consequences it may not do more injustice than justice. In the Abrams case the court referred to the fact that “in a restrictive covenant between an employer and employee there is small scope for the right of labor and trade and a correspondingly small freedom of contract.” In the Stenacher case the court referred to such a contract as being an indirect way of preventing an employee from leaving his employer’s services.

It will be noted that there is nothing in the contract itself nor in the allegations of the bill that indicates that complainant’s business involved the knowledge or use of trade secrets or the imparting to defendant inf ormation of a strictly confidential nature used in the conduct of the business which he might properly be restrained from divulging. There is certainly nothing peculiar about complainant’s business to suggest the use of any such secrets or information.

Nor is it expressly alleged in the bill that there was any solicitation of complainant’s customers. If such a claim is left for inference from the fact that said lists were missing after defendant left complainant’s employ, not only is the taking and use of them specifically denied under oath, but the inference is too vague to supply the absence of a direct allegation. Prima facie therefore the contract appears to be one to restrain comnetitiorrpe?"?cr--- — --—■ ----

In the Stenacher case, supra, it was held that the employer is not entitled to protection against all competition per se on the part of the employee apart from divulging trade secrets or putting them to the employee’s use or enticing away the employer’s customers. But none of these exceptions is expressly relied upon in this case. So far as appears from the contract or the bill, the restrictive clauses of the agreement relate solely tojhe competition per se and therefore are prima TaeíeiñvuEd, and to'establTsh their validity it is incumbent on'eoirrpM'nant to prove that there existed some special facts or circumstances which rendered them reasonably necessary for the protection of its business. (Bowler v. Lovegrove, L. R. [1921] 1 Ch. Div. 642, 650.)

The averments of the bill with respect to advertising and complainant’s method of doing business set forth nothing novel or that may not be employed by others in the same line of business, nor such similarity of advertising as tends to confusion or the detriment of complainant. And so far as the use of the defendant’s name either alone or in connection with the corporation organized by him is concerned, there is no averment to indicate that it carries with it the good will of complainant’s business.

Without further analysis of the bill it is enough to say that its averments not only do not positively set forth but the answer and affidavits deny the existence of those elements recognized by leading authorities, as essential to injunctive relief by reason of an employee’s breach of an agreement not to compete with his employer’s business after leaving the latter’s employment.

It is urged by appellee that the agreement not to engage in such business will be enforced because it is a negative covenant. But it is a recognized rule that a negative covenant will not be enforced where provisions of the contract appear unfair and unconscionable, as would be the case in a contract of this nature if the elements essential to its enforcement are lacking. As said in Victor Chemical Works v. Iliff, 299 Ill. 532:

“An injunction against the breach of a negative covenant in any case is, in effect, enforcing specific performance. * * * If a contract is palpably unfair and inequitable and complainant is attempting to enforce an unconscionable bargain, it is not entitled either to the equitable remedy of injunction or of specific performance.” (See also India Tea Co. v. Petersen, 108 Ill. App. 16.)

Answering a like contention in Clark Paper & Mfg. Co. v. Stenacher, supra, the court said:

“An express negative covenant not to work for another will not, as a rule, be granted save in those exceptional eases where, by reason of the peculiar or extraordinary character of the services a violation of an agreement will cause injury to the employer for which an action at law will afford,no adequate remedy. * * * In the cases where the court has enforced a-negative covenant by an employe not to work for another # * * the element of trade secrets or unfair dealing has been controlling and important. ’ ’

In"view, therefore, 'oJrthe natare o~f Lhe contract, the inadequacy of the averments to show facts and circumstances that would justify relief, and the express denials that any such exist, we think the court erred in not dissolving the injunction. Therefore the order will be reversed.

Reversed.

Gridley and Fitch, JJ., concur.


source: Caselaw Access Project

author: Mr. Justice Fitch

license: Public Domain

text:
    Jacob L. Kesner, Appellee, v. Consumers Company, Appellant.

      Gen. No. 29,919.
    1. Municipal corporations — effect of ordinance within municipal limits. A valid city ordinance has the force and effect of a statute within the corporate limits of the city, and any act done in violation of such ordinance is therefore unlawful.
    2. Landlord and tenant — duty to protect tenant against violations of ordinances creating fire hazard. "Where a city ordinance imposed restrictions upon the keeping of moving picture films in buildings within the city, requiring compliance therewith 'by both owners and tenants of such buildings, and violations of such ordinance constituted a source of danger to the occupancy of other tenants of the building, it was the duty of the owner, both under the ordinance and under his implied covenant for quiet enjoyment, to use all reasonable means to protect such other tenants against such other violations.
    3. Landlord and tenant — failure of landlord to compel observance by other tenants of ordinance as maintenance of nuisance. The failure of a landlord, after notice of the nonobservance by his tenant, a film exchange, of ordinances restricting the keeping of moving picture films on the premises, to compel observance thereof, where such violations constituted a source of danger to other tenants of the building, constituted the maintenance of a nuisance upon the premises occupied by such film exchange.
    4. Landlord and tenant — propriety of instruction as to duty of landlord to require other tenants to comply with ordinances regulating conduct of such tenant’s business. Where there was evidence in an action for rent defended by a claim of constructive eviction, tending to show notice to the landlord of violations by another tenant, a film exchange, of ordinances regulating the keeping of moving picture films in the building, such violations constituting a source of danger to the continued occupancy of the defendant, and such ordinance exacting compliance on the part of both owner and tenant, it was error to charge that plaintiff owed no duty to defendant to see that the film exchange in his building was “maintained and operated in a careful manner or in compliance with the ordinances of the City of Chicago.”
    5. Landlord and tenant — propriety of instruction respecting participation by landlord in violations by other tenants of ordinance regulating tenants’ business. An instruction, in an action for rent defended by a claim of constructive eviction, that defendant’s vacation of the premises was not justified and that the jury should find for the plaintiff unless they believed not only that the manner in which another tenant, a film exchange, conducted its business, amounted to conduct of such a grave and permanent character as to deprive defendant of the use and enjoyment of the premises, but also “that plaintiff actively participated in conducting said exchanges in said manner,” held prejudicially erroneous because misleading in that it might well have given the jury to understand that it was incumbent upon defendant to prove that plaintiff actively took part in conducting the exchange in an unlawful manner, whereas it would be sufficient for defendant to prove that plaintiff knowingly permitted the alleged dangerous condition to continue in his building without taking steps to remove the danger therefrom, as required by ordinance and his implied covenant to defendant for quiet enjoyment.
    6. Landlord and tenant — propriety of refusing requested instruction touching essentials to proof of constructive eviction. A requested instruction, in an action for rent defended toy a claim of constructive eviction, stating in substance that while the jury had been instructed that eviction is “the result of an intended willful, wrongful act on the part of the landlord,” still the intention of the landlord to evict “may be inferred from the character of the act or acts done by the landlord,” if the jury find from the evidence “that the necessary result thereof is to deprive the tenant of the beneficial, quiet or peaceable enjoyment of the demised premises,” held to state a correct rule of law and to have 'been improperly refused.

      %. Appeal and error — invited erroneous definition. An appellant is not in a position to complain of instructions giving definition of a term, where it has used substantially the same definition in its own instructions.
    8. Landlord and tenant — propriety of instruction defining “eviction” in action involving only issue as to constructive eviction. Instructions giving a general definition of the term “eviction” have only an indirect, if any, application to an action for rent wherein under the evidence there is presented merely an issue as to constructive eviction.
    9. Landlord and tenant — admissibility of evidence as to causes of fires in another city, in action for rent defended by claim of constructive eviction by maintenance of fire hazard. Tables purporting to be from annual reports of the fire department of New York City and to show the causes of fires in that city during a given period, held not properly admitted in evidence in an action for rent wherein it was claimed that defendant was constructively evicted from the demised premises by the failure of the plaintiff to compel other tenants of the building, operating film exchanges, to comply with, the provisions of ordinances regulating the keeping of motion, picture films in buildings, neither the reports nor the tabulations therefrom proving or tending to prove any fact material to the issues in the case.
    10. Evidence — admissibility of evidence as to other buildings permitting occupancy by business creating fire hazard made basis of claim of constructive eviction in defending action for rent. It was error, in an action for rent wherein the defendant claimed that it was constructively evicted from the demised premises by the failure of the' plaintiff to compel other tenants of the building, operating film exchanges, to comply with ordinances regulating the keeping of moving picture films therein, to permit a witness for plaintiff to testify concerning a list he had prepared showing other buildings in the city which had leased space to film exchanges, such evidence being immaterial to any issue in the case.
    11. Evidence — opinion evidence as to dangers from presence of fire hazard in building as invading province of jury in action for rent defended on ground of constructive eviction. It was error, in an action for rent wherein defendant claimed constructive eviction by the failure of the landlord to compel other tenants of the building, operating film exchanges, to comply with ordinance regulations governing the keeping .of moving picture films therein, to permit plaintiff to ask others of his tenants whether they considered the presence of the film exchanges in the building to be dangerous, the question of danger from the presence and operation of the film exchanges being one for the jury, nor was the admission of such evidence justified by the fact that defendant was permitted to ask like questions of expert witnesses, where plaintiff’s witnesses in rebuttal were not qualified as experts on the subject of the question.
    12. Landdobd and tenant — question for jury in action for rent defended by claim of constructive eviction by maintaining fire hazard in violation of statute. In an action for rent wherein the defendant claimed constructive eviction by the failure of the plaintiff to compel .other tenants, of the building, operating film exchanges, to comply with ordinances regulating the keeping of moving picture films in the building, the question for the jury was not whether “all reasonable men under substantially similar circumstances” as those of the plaintiff and the defendant would have regarded the danger, if any, created by the presence of the film exchanges in the building, as so great that the fear or apprehension of it would have disturbed the plaintiff’s occupancy of the premises to such an extent as to deprive it of the use and enjoyment thereof, but was whether the jury believed, from the evidence, that the maintenance and operation of the film exchanges was such a source of danger to the lives of the defendant’s employees and its, property as to seriously interfere with the beneficial use and enjoyment by defendant of the leased premises:
    Appeal 'by defendant from the Superior Court of Cook county; the Hon. M. L. McKinley, Judge, presiding. Heard in the second division of this court for the first district at the March term, 1925.
    Reversed and remanded.
    Opinion filed December 8, 1925.
    Rehearing denied December 21, 1925.
    Winston, Strawn & Shaw, for appellant; Edward W. Everett, Harold Beacon and George T. Evans, of counsel.
    Mayer, Meyer, Austrian & Platt, for appellee.
   Mr. Justice Fitch

delivered the opinion of the court.

This is an appeal from a judgment for $73,962.34 in plaintiff’s favor, mainly for rent of the twentieth and twenty-first floors of an office building at the corner of State and Quincy streets, Chicago. The defense was constructive eviction, arising out of the acts of the plaintiff in leasing other portions of the same building, underneath the floors occupied by defendant, to be occupied by motion picture film exchanges, with knowledge that such occupancy involved the use and storage of large quantities of explosive and inflammable material, attended with danger to defendant’s officers and employees, and in permitting such occupancy to continue against the protests of the defendant after a destructive fire in one of such exchanges had demonstrated, as is claimed, the dangerous character of such occupancy in an office building occupied by many different tenants. There was a jury trial and the record is voluminous. Exhaustive briefs have been filed, and we have also had the benefit of oral arguments by counsel. Having come to the conclusion, after due consideration, that the judgment must be reversed and the cause remanded, because of prejudicial errors at the trial, we shall refrain from stating more of the facts than may be necessary to give the reasons for onr conclusion.

The lease of the two floors mentioned is from plaintiff to defendant, was executed in 1913 and covers a period of twenty years. By it the twentieth and twenty-first floors of the building mentioned are demised to defendant to be occupied for office purposes of the business of the lessee. When the lease was made, the building was under construction, and the lease provides that the building shall be called the “Consumers Company Building.” Defendant took possession about May 1,1913, and remained in possession continuously until July 26, 1917, and paid all rent accruing under the lease up to August 1,1917. Defendant also had other leases for several single rooms, for shorter periods.

Subsequent to the making of defendant’s, main lease, leases of other parts of the building were made by plaintiff to corporations who operated what are known as “film exchanges.” It appears from the evidence that the business of conducting a film exchange involves receiving, storing, delivering and distributing motion picture films, paper posters and other advertising matter, to theaters where motion pictures, are to be exhibited; that a reel of film is 1,000 feet long and weighs five pounds; that these reels are not sold, but are rented, exhibited and returned, resulting in the films being constantly handled and stored in the exchanges ; that on July 1,1917, there were eight of these exchanges in the building and that at times as much as twenty tons of film were thus used and stored in the rooms occupied by them.

Ordinances of the City of Chicago were introduced in evidence, which forbid any person, firm or corporation from keeping or storing more than 3,000 feet of motion picture films in any building until a license therefor shall have been obtained upon application to the Chief of Fire Prevention and Public Safety. The ordinances provide that when snch an application is made, an investigation shall be made by the chief for the purpose of ascertaining whether or not the building in which it is desired to store or use such films “is so situated that the storage or using of motion picture ■films therein would not be so dangerous as to constitute a nuisance, or to be a menace to the safety of the public or to the adjoining property, and also whether the conditions under which such motion picture films are to be kept or used are such as to provide the maximum safety.” The ordinances also describe in detail the manner in which such films shall be kept, used and stored. They provide for the construction of vented vaults in which the films are to be stored, prescribe the manner in which the films shall be handled and inspected, make it the duty of the Chief of Fire Prevention and Public Safety to cause all such premises to be inspected at least once in two months, forbid smoking on the premises, etc. By these ordinances, the duty to comply therewith is imposed upon the owner of the building as well as upon the tenants.

On July 1, 1917, about three o’clock in the morning, a fire started in the rooms of one of the film exchanges on the fourth floor. While the origin of the fire was never ascertained, the evidence tends to prove that during its progress explosions occurred which blew out the doors and walls of the vaults where the films were stored; that the heat was intense; that flames shot out through the vents and windows and across a twelve-foot alley to an adjoining building; that the firemen were unable to use a cast-iron standpipe on the outside of the building because the fire had melted and warped it; that the fire escape was heated to a white heat, twisted out of shape and rendered useless, and that dangerous gases were generated.

Immediately after the fire, Mr. Fred Upham, president of the defendant company, told plaintiff that he had been informed by the Chief of the Fire Prevention Bureau, and that it was “plain to see,” that “if the fire had occurred while our people were occupying the floors which we rented, it would not have been possible to get out,” that he “did not propose to jeopardize the lives of our people” by “staying over what I considered a fire trap,’’ and that if the film com-panies were left in the building, defendant “would get out very promptly.” To this, plaintiff replied: “I am surprised, Fred, that you are such an old woman —to get scared at a little fire like that.” A few days later, Mr. Upham told plaintiff that if he would arrange the film exchanges in the building so that defendant could have suitable space beneath instead of above them, defendant would remain, “because that would obviate the danger to our employees,” and plaintiff submitted a proposition on that basis, which was declined by defendant because the space offered was not suitable. On July 21, 1917, defendant served a written notice upon plaintiff canceling its leases because plaintiff permitted other tenants to conduct therein “a business which renders the building dangerous to the property” of defendant “and to the lives of its employees,” and failed to remove the danger after being notified and requested so to do; and on July 27,1917, defendant moved its property and business to another building.,

Judgments by confession were entered in seventeen cases and a distress proceeding was instituted by the plaintiff. Defendant at once made motions to vacate the judgments and for leave to plead, which motions were granted in several cases, and pleas to the merits were filed in such cases. Then it was stipulated that all the suits be consolidated, that all claims of the plaintiff be presented and heard under the common counts in assumpsit, and all claims of the defendant, including its claim of set-off for alleged breach of the lessor’s covenant for quiet enjoyment, should be presented and heard under the plea of general issue.

The twelfth instruction given to the jury on behalf of the plaintiff told the jury that plaintiff “owed no duty” to defendant to see that the film exchanges in his building “were maintained and operated in a careful manner or in compliance with the ordinances of the City of Chicago. ” This was error. One section of an ordinance offered in evidence provides that “any building * * * or premises perilous to life or property by reason of the nature, condition or quantity of its contents or its use * * * or by reason of defects in its construction * * * or deficiencies in such * * * fire prevention equipment as may be required by the provisions of this chapter, is hereby declared to be a nuisance.” There was evidence tending to prove that the premises occupied by some, if not all, of the film, exchanges came within this definition of a nuisance. A valid city ordinance has the force and effect of a statute within the corporate limits of the city, and any act done in violation of such an ordinance is therefore unlawful. There was evidence tending to prove many violations of the ordinance by the film exchanges and that the plaintiff was notified of such violations both before and after the fire occurred. The ordinance imposed upon the plaintiff, as well as upon the film exchanges, the duty of compliance therewith, and if, as the evidence tends to prove, such violations constituted a serious hazard and source of danger to the continued occupancy by the defendant of the premises leased to it, it was plaintiff’s duty, both under the ordinance and under his implied covenant for quiet enjoyment, to use all reasonable means to protect the defendant against such violations. Plaintiff had the right and power under his leases to the film exchanges to compel observance by them of all city ordinances, and his failure to do so, after notice, if he did so fail, amounted, in effect, to maintaining a nuisance in the premises occupied by the exchanges.

The same instruction also told the jury that if defendant vacated the leased premises merely because of the manner in which the film exchanges were operated, such vacation “was not justified,” and the jury should find for the plaintiff, unless it believed from the evidence not only that the manner of conducting the film exchanges “amounted to conduct of such a grave and permanent character as to deprive defendant of the use and enjoyment of said premises,” but also “that plaintiff actively participated in conducting said exchanges in said manner.” The jury might well have understood this to mean that to justify defendant in vacating the premises it must prove that plaintiff actively took part in conducting the exchanges in an unlawful manner. Even to a lawyer, a failure or refusal to act is not the same thing as “active participation, ’ ’ although that seems to be the sense in which the latter phrase is used in the instruction. To a jury, who are not lawyers, the instruction in this respect was manifestly misleading, and in our opinion was prejudicial error.

The first and third instructions contain the same error, in requiring defendant to prove active participation by the plaintiff in the operation of the film exchanges, in addition to proof that defendant “consented to and connived in” the manner in which the exchanges were operated. Upon that question, it was enough to prove that plaintiff knowingly permitted the alleged dangerous conditions to continue in his building without taking such steps as were required of him by the city ordinance and by his implied covenant for quiet enjoyment, to remove the danger therefrom. The instructions should not have been given without modification in this respect.

The court refused instruction number fifty-seven, offered by defendant, stating in substance that while the jury had been instructed that eviction is “the result of an intended willful, wrongful act on the part of the landlord,” still the intention of the landlord to evict “may be inferred from the character of the act or acts done by the landlord,” if the jury find from the evidence, “that the necessary result thereof is to deprive the tenant of the beneficial, quiet or peaceable enjoyment of the demised premises.” This instruction states a correct principle of the law which was applicable to the facts proved and should have been given. The forty-eighth given instruction does not cover the same ground, as is claimed by plaintiff’s counsel.

As to the errors alleged in other instructions, which purport to give definitions of the term “eviction,” we think defendant is not in a position to complain of such errors, for the reason that it used substantially the same definitions in its own instructions. There is, however, a clear distinction between cases of actual eviction and those where only a constructive eviction is claimed, as in this case, and general definitions which apply only to cases of actual expulsion of a tenant or physical interference by the landlord with a tenant’s possession, have only an indirect application, if any, to the facts of this case. Without discussing in detail the nature and the reasons for this distinction, it will be enough, we think, to call attention to the following cases, which illustrate the distinction and apply it to acts of a character and effect similar to those shown by the evidence in this case: Halligan v. Wade, 21 Ill. 470; Wright v. Lattin, 38 Ill. 293; Lancashire v. Garford Mfg. Co., 199 Mo. App. 418, 203 S. W. 668; Wade v. Herndl, 127 Wis. 544; Donovan v. Koehler, 119 App. Div. 51, 103 N. Y. Supp. 935; Duff v. Hart, 16 N. Y. Supp. 163; Weiler v. Pancoast, 71 N. J. L. 414; Blaustein v. Pincus, 47 Mont. 202, 211; Hartenbauer v. Brumbaugh, 220 Ill. App. 326; Allott v. Bowers, 168 Ill. App. 573. The recent case of Gibbons v. Hoefeld, 299 Ill. 455, 464, also points out a further distinction as to affirmative proof of intent in cases where the alleged eviction consists of an omission of duty by the landlord which has the effect of depriving the tenant of the beneficial use and enjoyment of the demised premises.

Upon the trial, plaintiff called John F. Ancona as an expert witness. He took with him to the witness stand two tabulations made by him from published documents, purporting to be annual reports of the fire department of New York City to the mayor of that city, and purporting to show the causes of fires in New York, and the losses in money therefrom during the years 1912 to 1917. The publications from which the witness made these tabulations were not properly identified, and would not have been admissible even if they had been duly authenticated. The witness testified that all he knew of the published documents from which he made his tables was that “certain publications were made which purport to be made by the New York fire department, and I know nothing of the correctness of them,” nor “whether they were published by the authority of the City of New York,” nor “how the original reports were made up.” One of these tables, purporting to show the causes of fires in greater New York during the years 1916 and 1917, in which there was a loss of life, purports to show that none of such fires' was caused by film, although, as we understand it, that is merely the conclusion of the witness from the fact that film is not mentioned in the report as one of such causes. The other table purports to show that out of a total of over 84,000 fires in that city in six years, only 145 were due to films, while over 3.000 were due to benzine and gasoline, and nearly 70.000 from “other causes,” not enumerated. These tables were admitted in evidence over the objection of defendant’s counsel, and, over a like objection, were permitted to be taken by the jury to the jury room. Neither the published reports nor the tabulations therefrom prove or tend to prove any fact material to the issues in this case. It was error to admit them.

We think it was also error to permit the plaintiff’s witness Siebert to testify concerning a list he had prepared of other buildings in Chicago which leased space to film exchanges. This testimony was objected to and the objection should have been sustained. Whether the owners of other buildings permitted film exchanges in their buildings was immaterial to any issue in this case.

It was also error to permit plaintiff, in rebuttal, to ask a number of his tenants, in effect, whether they considered the presence of the film exchanges in his building to be dangerous. The question of danger from the presence and operation of the film exchanges was a question for the jury to determine, and it was not proper to ask the opinions of witnesses upon that subject. Plaintiff’s counsel attempt to justify their introduction of this evidence by saying that defendant opened the door to it by placing expert witnesses on the stand and asking them similar questions. We are inclined to hold that the questions propounded by plaintiff’s counsel were improper even if asked of expert witnesses, because they invaded the province of the jury. But the witnesses produced by plaintiff in rebuttal were not qualified to speak upon the subject, even if the question had been otherwise proper. The question before the jury was not whether “all reasonable men under substantially similar circumstances and conditions as those of the plaintiff Kesner and the defendant Consumers Company would have regarded such danger, if any, as so great that the fear or apprehension of it would have interfered with or disturbed said company’s occupancy of the premises in question to such an extent as to deprive it of the use and enjoyment thereof” (as was erroneously stated in the first given instruction) but was, whether the jury believed, from the evidence, that the maintenance and operation of the film exchanges was such a source of danger to the lives of defendant’s employees and its property as to seriously interfere with the beneficial use and enjoyment by defendant of the leased premises.

For the reasons stated the judgment is reversed and the cause remanded.

Reversed and remanded.

Barnes, P. J., and Gridley, J., concur.


text:
    Edwin W. Abbe et al., Appellants, v. Archie M. Andrews et al., Appellees.
    Gen. No. 30,178.
    1. Equity — multifariousness of stockholders' bill joining cause of action against promoters fraudulently inducing purchase of stock and cause of action against creditors’ committee for negligent failure to protect interests of corporation. Where subscribers to the stock of a corporation, in a bill against the promoters and officers thereof and the members of a creditors’ committee formed from the directorate of the corporation, seek rescission of their stock subscriptions on the ground that the same were procured by fraud, and in the same bill ask recovery against the members of the creditors.’ committee because of their negligent failure to compel restitution by the promoters to- the corporation of the proceeds of such fraudulently induced subscriptions, a demurrer to the bill on the ground of multifariousness was properly sustained, notwithstanding that it was further alleged that said committee ratified and approved, such fraudulent conduct.
    2. Equity — multifariousness of bill demurrable as to pai~t of defendants on ground of laches or bar of statute. A bill in equity is properly dismissed as multifarious where it appears that the same is demurrable as to a part of the defendants therein for laches or because action is barred by the statute of limitations.
    3. Limitation of actions — demurrer to bill in equity as basis for presenting defense of limitations. In the absence of an equitable excuse alleged in a bill to avoid the bar of the statute of limitations, such defense may be urged upon demurrer to the bill where the bar appears upon the face thereof.

      i. Corporations — bar of suit in equity against creditors’ com

      mittee ratifying fraudulent acts of promoters. Where members of a creditors’ committee of a corporation, sought to be held jointly responsible with promoters thereof for alleged fraudulent acts whereby complainants were induced to become subscribers to the stock of such corporation, did not become connected with such corporation until after the accomplishment of such fraudulent purpose, and were chargeable, if at all, upon the ground of subsequent ratification of such fraudulent acts, such committee members were entitled to set up laches or the bar of the statute of limitations as a defense to the bill.
    5. Equity — dismissal of Kill on demurrer for multifariousness in absence of application for leave to a'mend. Where complainant, after his bill was held demurrable for multifariousness as to part of the defendants, failed to apply for leave to dismiss the bill as to such defendants, the same was properly dismissed for want of equity.
    Appeal by plaintiffs from the Circuit Court of Cook county; the Hon. Hugo M. Fbiend, Judge, presiding. Heard in .the second division of this court for the first district at the March term, 1925.
    Affirmed.
    Opinion filed December 8, 1925.
    Rehearing denied December 21, 1925.
    James W. Cutshaw and George W. Plummer, for appellants.
    Louis J. Behan, William J. Corrigan, Stebbins, Garey, L’Amoreaux & Hurtubise, Gann, Secord & Stead and Culver, Andrews & King, for appellees; Loy N. McIntosh and Mack C. Wylie, of counsel.
   Mr. Justice Fitch

delivered the opinion of the court.

By this appeal, complainants seek to reverse a decree dismissing their bill for want of equity after demurrers thereto had been sustained.

The bill, as amended, covers 160 typewritten pages. There are 1,612 complainants and 38 defendants. The complainants are all alleged tobe “original subscribers, purchasers and allottees of Smith Motor Truck Corporation stock, purchased direct from the defendants or their agents.” The hill states that they sue “as a Voluntary Association, comprising a class,” in their own behalf and on behalf of all others similarly situated who may join in the suit, that they are “similarly aggrieved,” that their suit is based upon the same state of facts, and that the relief to which they deem themselves entitled is also identical; that their suit is a personal action “for the rescission of said subscription contracts” and the recovery of their purchase money, with interest.

The defendants are, first, certain promoters, viz.: J. M. Hoyt, C. B. Little, E. I. Bosenfeld, Andrews & Co., a “Trust Estate,” and its three “Trustees,” and three persons alleged to be partners doing business under the’ firm name of Miehaelis & Company; second, the Smith Motor Truck Corporation, “now bankrupt and defunct,” its receiver and trustee in bankruptcy, “now discharged,” and the Dearborn Truck Company, its “successor,” which bought the assets of the corporation at the bankruptcy sale; third, a “representative” stockholder; fourth, a “representative” creditor, and fifth, 21 persons who were at some time directors or officers of the corporation, including the members of a creditors’ committee who also acted as directors for a time. The bill prays for a decree permitting complainants to rescind and cancel all their contracts for the purchase of stock, on the ground of fraud, and that the defendant promoters, directors and officers be held to be “trustees ex maleficio” and be required to pay into court the full amount of the purchase money paid by complainants for their stock, with interest, to be equitably distributed, under the direction of the court, to the complainants as their interests may appear. The bill expressly states that none of its allegations of conspiracy, misrepresentation, fraud and deceit “are directed against the corporation, the receiver, stockholders, creditors or other claimants, ” and that “no affirmative relief is demanded of them or any of them.”

The hill alleges that in September, 1915, the defendants Smith and Bosenfeld, both of whom “were without funds,” organized a corporation called “Smith Form-a-Truck Company” (which is thereafter referred to as the “old company”) under the laws of Delaware, with an authorized capital of $100,000, purchased a' manufacturing site at Clearing, Illinois, and began the manufacture of a device for converting small motor cars into light commercial trucks, which business was so prosperous from the beginning that in less than one year it was able “to show an audit of approximately $600,000 in assets”; that during 1916 the defendants Hoyt and Little became associated with the defendant Bosenfeld in the enterprise, and thereupon “the defendant promoters” conceived and began executing a “well-defined scheme, plan and device to cheat and defraud the public”; that on November 13,1916, Hoyt, Little and Bosenfeld entered into a contract with the defendants Michaelis & Company and A. M. Andrews, styled in the bill a “preorganization agreement,” which is set out in full in the bill, which they carried out “and thereby succeeded in victimizing about 4,000 persons, including the complainants, to the extent of nearly six million dollars. ’ ’

The agreement thus quoted provides, in substance, that Hoyt, Little and Bosenfeld shall cause to be organized under the laws of Virginia, a corporation to be called “Smith Motor Truck Corporation” (thereafter referred to as the “new corporation”), with an authorized capitalization of $14,000,000, of which $2,000,000 is to be preferred stock and the remainder common stock, and to cause to be transferred to the new corporation all the capital stock of the old company, or all its assets, and also to pay to the new corporation $830,000 in cash, in consideration of the issue to them by the new corporation of $1,400,000 par value of its preferred stock, and $10,000,000 par value of its common stock; that Andrews and Michaelis & Company agree to buy from Hoyt, Little and Bosenfeld all of such preferred stock and half of such common stock for $1,530,000, payable in specified instalments during the succeeding three months “at the rate of $15.30 for each $14.00 par amount of preferred stock” upon delivery of stock certificates in the proportion of 500 shares of common stock to 14 shares of preferred stock; and that out of such payments Hoyt, Little and Bosenfeld shall pay to the new corporation “when and as received” by them from Andrews and Michaelis, 83/153 of the total amount so paid, “for working capital.” The agreement further provides that Andrews and Michaelis & Company shall name three of the seven directors of the new corporation and one member of the executive committee, and that the remaining $600,-000 par value of preferred stock and $2,000,000 par value of common stock shall be deposited with a trust company to prevent the sale thereof without the consent of Andrews and Michaelis.

The bill then alleges that pursuant to that agreement, a charter was obtained for the new corporation, with an authorized capital of $14,000,000, and a minimum capital of $3,000; that three dummies, selected by Hoyt, Little and Bosenfeld, subscribed for the necessary minimum amount of stock, which subscription was afterward credited as a payment on the stock of Hoyt; that these subscribers then held a stockholders ’ meeting and elected seven dummy directors, named by Hoyt, Little and Bosenfeld, none of whom had any interest whatever in the corporation except the amount they received for their services from Hoyt, Bosenfeld and Little, and to those directors Hoyt presented a written proposition to subscribe for $11,997,000 par value of preferred and common stock in the new corporation, and to pay such subscription by turning over to the new corporation all of the capital stock of the old company, and also paying $830,000 in cash “if, as and when received” from the sale of the stock so subscribed for, which offer of Hoyt was at once accepted, and, a few days later, a meeting of the board of directors was held in New York, at which all the dummy directors except one resigned and in their places the defendants Hoyt, Little, Bosenfeld, and three others were elected directors, and the defendants Hoyt, Bosenfeld and Little were constituted the executive committee of the board.

The bill charges that the sale of stock of the new corporation in this maimer to Andrews and Michaelis & Company, as provided for by the preorganization agreement, “was wholly fictitious, and was made with the understanding that Hoyt, Little and Bosenfeld should secure possession of the highly diluted promotion stock, ’ ’ and that Andrews and Michaelis should dispose of the same and divide the proceeds among all the parties according to the terms of that agreement; that this was done in furtherance of a conspiracy to cheat and defraud prospective purchasers of stock, “and constituted the legal trappings, the settings and the prelude to the contemplated hurricane stock-selling campaign about to be inaugurated”; that in effect the buyers and sellers were the same persons, and such sale and exchange of stock were unlawful and void; that none of the assets or physical property of the old company was ever delivered to the new company, but that the former retained its corporate identity and continued to transact business as before, and that the only assets of the new corporation, received in exchange for its issue of $1,400,000 preferred and $10,000,000 common stock to Hoyt and his associates, was the capital stock of the old company, of the par value of $100,000, and an alleged lease which was after-wards repudiated and abrogated.

The bill further .alleges, that upon completing the organization of the new corporation in this manner, “the defendant promoters inaugurated a gigantic stock-selling campaign, which included every section of the United States, for the purpose of unloading on the public the said wholly worthless privately owned promotion stock”; that the promoters, “appropriated the greater portion, probably eighty-five per cent or more, of the proceeds of the sale of said stock,” the exact amount thereof being unknown to complainants; that the defendant promoters, officers and directors occupied a fiduciary relation to subscribers and purchasers of stock, and it was their duty to disclose to complainants and other “subscribers” and purchasers of such stock, the actual facts regarding the acquisition of such stock by the promoters, but they disregarded that duty and their relation of trust and confidence, and while pretending and representing that they were agents of the corporation, selling stock owned by it, they were in fact acting as principals, selling “worthless promotion stock owned by themselves,” intending thereby to cheat and defraud complainants, and thereby they became “trustees ex maleficio of all the money thus paid for said worthless stock”; that in this stock-selling campaign, they represented that the new corporation would take over the assets, business and plant of the old company, which had quick assets amounting to $1,446,032, and was then earning over “eight times the dividend requirements” on the preferred stock of the new corporation; that Andrews & Company sent out telegrams offering stock for sale on the representation that the corporation was earning profits of a million dollars a year and that its estimated profits for the next year would be three and a half million dollars, and made other false representation in circular letters, written on the corporation’s stationery, falsely representing the manufacturing property to belong to the corporation, whereas, in fact, the old company was conducting the manufacturing business and had possession of all the physical assets, and had in fact borrowed thereon nearly a million dollars, and secured the same by chattel mortgages on its plant and by pledges of its output; that in fact “the corporation” was insolvent, and on October 5,1917, a meeting of its creditors was called and a creditors’ committee appointed; that it was then found that “the enterprise” owed more than its assets, and an agreement was made extending the claims of creditors, but that when such claims fell due there was no money to pay them and bankruptcy followed, on August 31, 1918; that it then appeared that instead of making any profits, as represented, there was in fact a deficit of over $350,000 for the thirteen months ending December 31, 1917.

The bill further charges that from time to time the directors met and expressly ratified all the previous acts of the board and of the executive committee, and voted large salaries to the president, chairman of the board, and general counsel; that in December, 1917, the members of the creditors ’ committee were formally elected directors, and so remained until the corporation was declared bankrupt; that it was their duty to know “and they probably did ascertain and know, all the facts attending said plan, scheme and device to cheat and defraud complainants,” and it was their duty to disclose such facts and institute proceedings “onbehalf of the corporation against the conspiring promoters, to compel them to turn in to the depleted treasury of the corporation the proceeds of the sale of said stock, less their reasonable commission,” or, failing in that, to wind up the business of the corporation; but, instead, they chose to conceal the facts, and ratified the acts of the promoters, “and thus made themselves parties to the said conspiracy.”

It is further alleged that complainants “had confidence in and relied upon * * * the statements and representations of defendants and the full disclosure of all material facts,” and “reposed full confidence in defendants” as business men, prominent in the financial world, and “were slow to act and loath to believe that they had been deceived and duped, until an investigation, which was begun in their behalf soon after notice of said bankruptcy proceedings was received,” revealed that “they had been made the victims of said fraudulent scheme and conspiracy,” but that “the full scope and import of said conspiracy, however, was not disclosed until November 15,1919, when a copy of said preorganization agreement came into (their) possession,” whereupon they notified defendants in writing of their election to rescind their subscription contracts and demanded the return of their money with interest, offering to return the certificates, etc.

It is also alleged that some of the complainants began a suit in the superior court for an accounting on February 26, 1919; and that another suit was brought in the United States District Court in December, 1919, both of which suits were dismissed. The bill in this case was filed February 29,1924.

. Three members of the creditors’ committee, who were made defendants, were served. They were W. R. Dawes, D. R. Forgan and P. L. Coonley. They filed a joint and several demurrer to the bill as amended, alleging, with other grounds, that the bill was bad for multifariousness and misjoinder, and that the alleged cause of action against them was barred by the five-year statute of limitations. All of the other defendants who were served with process filed similar demurrers to the amended bill. These demurrers were sustained, and thereupon the bill was dismissed for want of equity.

In First Nat. Bank of Lincoln v. Starkey, 268 Ill. 22, 25, the court said, in substance, that to lay down any rule universally applicable as to multifariousness is, under the authorities, utterly impossible; that there is no inflexible rule, but the question is one which must be determined largely by the circumstances of each particular case; that under recent decisions, it is held that the objection of multifariousness raises merely a question of convenience in conducting the suit, that is, whether the court, in its discretion, will permit the various causes set forth in the bill to be tried in a single suit, or divided and tried in two or more suits, or whether a defendant who- is a necessary party in respect to some matters covered by the bill is so connected with the other matters involved as to make him a proper party in respect to them. In its opinion in that case, the court states several recognized principles and tests by which the defect of multifariousness may be discovered in any particular case. The first of such tests is that of “improperly joining in one bill distinct and independent matters and thereby confounding them.” Another is whether the causes of action united in the bill require separate proofs, decrees or defenses. The opinion adds (p. 27): “But what is more familiarly understood by the term 6 multifariousness ’ as applied to a bill, is where a party is able to say that he is brought as a defendant upon a record with a large portion of which he has no connection whatever. (1 Daniell’s Ch. Pr. — 6th Am. Ed. — *336.) ”

In King v. Rice, 285 Ill. 123, 128, it is said: “Where the grounds of the suit against the defendants are different, each being sufficient in itself to sustain a bill and requiring different remedies, the bill will be deemed multifarious.” It was upon this ground that the court, in Golden v. Cervenka, 278 Ill. 409, 437, held a bill to be multifarious which was brought by certain creditors, who sued in their own behalf and that of all other creditors similarly situated, against certain stockholders of an insolvent bank and also against a trust company which was sought to be charged with liability because of certain acts in connection with the organization of the insolvent bank. In that case, the joinder of all the creditors as complainants and all of the stockholders as defendants was held to be permissible, but that the alleged liability of the trust company was a distinct matter and made the bill multifarious.

In Winsor v. Bailey, 55 N. H. 218, the same principle was applied. There, a hill in equity, brought by part of the stockholders of a manufacturing corporation, charged that an illegal and fraudulent payment of dividends had been made to part only of the stockholders, and prayed that such stockholders be required to restore the same. The bill also charged fraud and maladministration in office against the treasurer, and prayed for an injunction restraining him from further performing the duties of his office. It was held that while the bill was not multifarious as to the cause of action alleged against the stockholders, it was open to the objection of multifariousness in joining with that cause of action, the alleged cause of action against the treasurer, saying (p. 222): “Several matters, distinct and unconnected, can not be joined in a bill against one defendant, nor, with still stronger reason, against several defendants when the various matters do not apply to some of them. Story’s Eq. Pl., sec. 275.”

In the present case, the cause of action against the promoters is based upon the theory that the complainants have rescinded their several contracts for the purchase of stock because of alleged fraud and misrepresentation in the sale thereof, and are therefore entitled to a decree against those to whom it was paid, for the return of the purchase money. The cause of action against the members of the creditors ’ committee is entirely different. They are charged only with alleged neglect of duty in failing, after they had become directors (and thereby, presumably, had ascertained that such a fraud had been committed), to take immediate steps to wind up the affairs of the corporation, or to bring’ proceedings, on behalf of the corporation, against the promoters to compel them to turn into the corporate treasury the proceeds of the sale of such stock. The former alleged cause of action is grounded upon the theory that complainants are no longer stockholders. The latter cause of action is grounded upon the theory that complainants still own the stock. The former cause of action is for money had and received, the latter for negligence.

It is charged in the bill, however, that the members of the creditors’ committee became liable to the complainants individually and collectively because of the fact that after they were elected directors, they ratified and approved the acts of their predecessors on the board of directors. It is, we think, a sufficient answer to this contention to point out that the bill alleges that all but about 125 of the 1,612 complainants purchased their stock before the creditors ’ committee came into existence. As to more than nine-tenths of the complainants, therefore, the alleged fraudulent conspiracy on the part of the promoters was fully carried out without the aid or assistance, in any manner or form, of any member of the creditors’ committee. The alleged ratification by the members of the creditors ’ committee, after they became directors, of the previous acts of their predecessors on the board, could not and did not make them parties to any conspiracy in which they had no part whatever, and did not alter or affect the position of such complainants in any respect whatever. As to those of the complainants who purchased their stock after the creditors’ committee took charge, the averments of the bill clearly show that if they had any diligence whatever in buying their stock, they would have known that instead of making large profits the concern was insolvent, or bordering on insolvency, at that time.

We conclude, therefore, that the joinder of these causes of action in one bill makes the bill multifarious, and the demurrer upon that ground was properly sustained.

It has been held that the bar of the statute of limitations may be urged on demurrer where the bar appears on the face of the hill, unless an equitable excuse is alleged in the bill to avoid the bar. (Bell v. Johnson, 111 Ill. 374, 379; Kerfoot v. Billings, 160 Ill. 563, 572.) Here, the bill shows that the corporation was adjudged a bankrupt in August, 1918, more than five years before this bill was filed. Undoubtedly, the promoters of a corporation stand in a fiduciary relation to the future bona fide purchasers of stock from the treasury of a corporation, and when such promoters obtain a secret profit for themselves, they will be chargeable in equity therefor at the suit of the defrauded stockholders. (Mason v. Carrothers, 105 Me. 392; Cox v. National Coal & Oil Inv. Co., 61W. Va. 291; Hayward v. Leeson, 176 Mass. 310.) For that reason it is held that if such promoters fail to disclose to the subscribers of stock the true nature of the transaction, that fact may excuse the latter from the use of ordinary diligence to discover the fraud. (Keithley v. Mutual Life Ins. Co. of New York, 271 Ill. 584). But while this is true as to the promoters, and as to such directors, if any, as may have participated therein, it certainly cannot prevent the defendants, who were members of the creditors’ committee and became connected with the corporation long after the fraud on the stockholders was committed, from claiming the bar of the statute or setting up laches on the part of the complainants. As, to such defendants, we think the cause of action was barred by the statute of limitation, or by laches, and that as to them their demurrer was properly sustained upon that ground. This conclusion is an additional reason for holding that the bill is multifarious, for such defense, which is good as to some of the defendants, is not good as to others.

It does not appear from the record that complainants sought leave to dismiss their bill as to the members of the creditors’ committee or to obtain leave to amend it, so as to make it not demurrable. For that reason, the decree dismissing the bill for want of equity necessarily followed.

In view of what we have said, it will be unnecessary to consider the other propositions advanced, by complainants.

The decree is affirmed.

Affirmed.

Barnes, P, J., and Gridley, J., concur.


author: Mb. Justice Gbidley

text:
    Lucien I. Yeomans, Plaintiff in Error, v. Charles A. Brown, Defendant in Error.
    Gen. No. 29,975.
    1. Contracts — sufficiency of evidence to establish agreement by defendant to- advance funds for re-establishment of corporation. In an action for damages resulting from the breach by defendant of an alleged agreement with plaintiff and other stockholders of a corporation, wherein defendant undertook to take over and operate the affairs of such corporation for a certain period, advance the necessary money to save it from bankruptcy, and restore it to them when it was put on a paying basis, held that the court was warranted in directing a verdict for defendant upon the ground that the evidence failed to show an agreement by defendant to advance funds in the amount or for the purposes alleged except as in his judgment it was expedient to do so.
    2. Evidence — evidence admissible to establish agreement by defendant to advance funds for financial re-establishment of corporation. In an action for damages for the breach by defendant of an alleged agreement with plaintiff and other stockholders of a corporation, wherein defendant undertook to advance funds sufficient to save the corporation from bankruptcy, it was not error to exclude testimony by plaintiff relative to an alleged conversation with a third person, not in defendant’s presence, touching the amounts of money defendant had paid out or was going to pay out for the benefit of the corporation, such evidence being immaterial to any issue in the case.
    Hitch, J., dissenting.
    Error by plaintiff to the Superior Court of Cook county; the Hon. Joseph B. David, Judge, presiding. Heard in the second division of this court for the first district at the March term, 1925.
    Affirmed.
    Opinion filed December 8, 1925.

      Montgomery, Hart & Smith, for plaintiff in error.
    Litsinger, Healy & Reid, for defendant in error.
   Mb. Justice Gbidley

delivered the opinion of the court.

At the conclusion of plaintiff’s evidence on the trial of an assumpsit suit, the court directed the jury to return a verdict for the defendant, and a judgment against plaintiff followed, which by this writ he seeks to reverse.

One of the grounds stated by the court for directing the verdict was that the evidence “does not sustain the allegations of the declaration.” Plaintiff’s one special count charged in substance that on July 1,1921, in consideration that plaintiff, as owner of certain shares of stock of the American Metal Products. Company (an Dlinois corporation and hereinafter referred to as the Products Co.) and all other stockholders, would transfer to a trustee to be named by defendant all of the stock, to be held in trust for three years and voted as defendant might direct, and also that plaintiff and all stockholders would consent to a moratorium for a like period as to the indebtedness due them from the company, unless deféndant sooner put the company “upon a satisfactory paying basis,” defendant undertook and promised that he would operate the company for said period and “advance to it the money necessary to - carry out his plans and save said company from bankruptcythat although plaintiff and all other stockholders performed their part of the undertaking, defendant refused to perform his part and “failed to advance to the company moneys sufficient to pay its creditors,” and, on the contrary “assisted” the creditors to put the company into bankruptcy on August 2, 1921; and that by reason of the foregoing “plaintiff became liable to William D. Gibson Co., a corporation, on his endorsements on notes” of the Products Co., given to said Gibson Co. prior to June 29,1921, and which notes became due on August 8, 1921, to plaintiff’s damage in the sum of $3,000. In plaintiff’s affidavit of claim, accompanying the declaration, is the statement that his demand is “for damages sustained” by him as indorser on said notes, “which the defendant agreed to pay.”

It thus clearly appears that the theory of plaintiff’s alleged claim is that defendant, for the considerations mentioned, agreed to advance the moneys necessary to save the Products C'o. from bankruptcy and to pay the said notes which plaintiff individually had indorsed.

To the declaration defendant filed a plea of the general issue and a plea of the statute of frauds. In his affidavit of defense he states that he never agreed to pay the notes and never promised to advance to the Products Co. moneys necessary to carry out any plans or to save that company from bankruptcy.

On the trial plaintiff introduced in evidence a certain letter addressed to him individually, signed by defendant and dated June 29,1921, in which is contained the following proposal:

“I propose to have all the stock put in trust for three years, say, if I need to carry it on that long. At the end of this period, or earlier if I get it upon a satisfactory paying basis, I shall terminate the trust arrangement and restore the stock to the stockholders. In the meantime, I am to have a perfectly free hand. All debts to the company must be paid at once. All debts owing by the company to stockholders will be subject to a moratorium. I propose to put in the money absolutely required to carry out the plans which I have outlined above. The general spirit of this arrangement is, that to avoid imminent bankruptcy, I take over the business with an absolutely free hand with the expectation of gradually putting it on its feet, and when I have done so, if I succeed, I shall turn it back to the stockholders. I shall not undertake this unless it is with the cheerful co-operation of all who are interested. * * * No one risks anything in the enterprise upon which I am embarking except myself.”

Plaintiff claimed on the trial that defendant’s proposal was accepted (thereby becoming a contract) in a letter which he on the following day, June 30, sent to defendant, in part as follows:

“Replying to your proposition of June 29th, — I express the feeling of Mr. Winslow and Miss O’Hara, as well as my own, in saying that we believe the plan proposed by you is one that insures the ultimate success of the Products Co. * * * We are assuming that the entire plan will receive the equally hearty approval of Mr. Buchanan, and are led to think such is the case, not only from our conversation with your representative but from his own remarks at the stockholders ’ meeting on the 27th. We have not been able to get in touch with him, and to a certain extent our unqualified, agreement with your plan is subject to his approval.”

It thus appears on the face of plaintiff’s letter that defendant’s proposal was not unqualifiedly accepted. Plaintiff’s evidence also showed that subsequently further negotiations were had between defendant and plaintiff and other stockholders of the Products Co. resulting in the signing of a certain agreement (bearing date June 30,1921) by all of said stockholders, except two, wherein they “trusteed” their stock under certain conditions.

This agreement, although not signed by defendant, was, for a period of about one month, acted upon by him and by the stockholders. It contained recitals that the Products Co. was in financial difficulties; that Charles A. Brown (defendant) “is willing to undertake the financing of the company, so far as in his judgment may be deemed advisable, upon condition that its capital stock, or so much thereof as he may demand, be transferred in trust to such person or persons as he may designate, and upon conditions satisfactory to him”; and that said Brown has designated Alexander C. Mabee to act as trustee, who hereby acknowledges the transfer to him, as trustee, “of the following blocks of the capital stock of said corporation by the persons indicated, all of whom by their signatures hereto acknowledge and agree to all the terms and conditions hereof.” Then follows a list of names and the number of shares held by each, viz., Lucien I. Yeomans (plaintiff) 1,266 shares, D. W. Buchanan 2,494 shares, D. W. Buchanan for M. E. O’Hara 866 shares, and Paul Winslow and W. P. MacCracken, Jr., one share each. It is then agreed that the trustee shall hold said shares for a period of three years “unless sooner requested by Charles A. Brown to reconvey them to the cestui que trust.” Then follow provisions as to the power and duties of the trustee, and it is provided that the trustee assumes no responsibility for errors of judgment, nor for complying with any request of Charles A. Brown. It is further provided that said Brown “shall not be held responsible by any of said stockholders for any error of judgment but only for deliberate fraud”; and there are provisions for the appointment by Brown of another trustee in case he should desire it or in case of Mabee’s death or resignation, and that at the end of the three-year period the trustee shall retransfer the stock back to the cestui que trust.

Plaintiff’s evidence, oral and documentary, further disclosed certain facts, leading up to the signing of the agreement, in substance as follows: In addition to the stockholders (including plaintiff) who signed that agreement, defendant and one W. H. Winslow were stockholders in the Products Co. Plaintiff was its president, Miss M. E. O’Hara its secretary and Paul Winslow its treasurer. The company had actively been engaged in business but was financially embarrassed. Among its bills payable were its two notes, each for about $900, dated June 24, 1921, and payable to the order of the Gibson Co. in 30 and 45 days respectively. Bach bore the individual indorsements of plaintiff, Paul Winslow and Miss O’Hara. A special meeting of the stockholders was held on June 27,1921, at which plaintiff, defendant, D. W. Buchanan, and other stockholders were present. It appeared that $30,000 would have to be raised to meet the company’s pressing obligations. Upon plaintiff’s inquiry, all present expressed themselves as unwilling to render further financial assistance by way of loans, subscriptions to stock or otherwise. Plaintiff, as president, then stated that he saw no way to avoid bankruptcy except by selling its tangible assets, and expressed the opinion that he could make such a sale for about $75,000, with a contract with the purchaser whereby the company might continue manufacturing and selling its products, and thereby funds would be available to weather the storm. D. W. Buchanan, the largest stockholder, and defendant each stated that they did not favor such a sale, the same was not consented to, and the meeting adjourned with the understanding that the directors and officers find another way out of the dilemma. Shortly thereafter plaintiff and defendant had an interview concerning the situation, which resulted in defendant making his written proposal to plaintiff of June 29, above mentioned. On July 29,1921, about, one month' after the signing of the agreement and during which period defendant and the trustee had been acting thereunder, defendant wrote plaintiff in part as follows:

“After a month of effort, and owing principally to the impossibility of getting certain of the creditors of the Products Co. to take their places in line, I can see that it is not going to be possible to avoid bankruptcy, and I, therefore, shall approve canceling the trust arrangement and returning the stock to the stockholders. I offered to the creditors, if they agreed to the plan, that I would postpone my claim and Mr. Winslow’s until the other claims were paid. * * * In addition, I undertook to put money in to keep the concern going, providing no one upset the arrangement by putting the concern in bankruptcy. Most of the creditors accepted this most favorable offer, but a few, of whom Wallace was one, were irreconcilable. Suit has been begun, and I think bankruptcy is inevitable. * * * The accounts receivable were largely uncollectible. Assets valued at over $30,000, — enough practically to pay all debts of the company, except those to Mr. Win-slow and me, — became unavailable. However, the real reason for not continuing the effort is the unwillingness of the creditors to stand in line.”

To this letter plaintiff replied on the following day, expressing surprise, calling attention to certain statements in defendant’s proposal letter of June 29, and concluding:

“However, if you desire to terminate the arrangement, I assume that the fair thing to do is to call a meeting at which all the stockholders can be present, except W. H. Winslow, and put the proposition up to them. I understand that Mr. Buchanan is temporarily out of the city and would suggest that the meeting be set for Wednesday or Thursday of next week.”

It does not appear what action, if any, was taken at that meeting. Plaintiff’s evidence further disclosed that on August 2, 1921, a petition in bankruptcy was filed against the company; that the attorney who filed such petition obtained a list of its creditors, after a call on defendant, from either Mabee or Winslow; that more than a year later, on October 31,1922, judgments were entered in favor of the Gibson Co. against plaintiff and Miss O ’Hara, as indorsers on the notes above mentioned; that part of the amount due on the notes was paid out of the bankrupt estate; and that plaintiff had paid about $900 on the judgments rendered against him. There was no evidence tending to show that defondant “assisted” in putting the company into bankruptcy, as charged.

After reviewing plaintiff’s evidence, we are of the opinion that the trial court was amply justified in instructing the jury to return a verdict for the defendant, in that the evidence did not show that defendant promised or agreed to advance the moneys necessary to save the Products C'o. from bankruptcy, or promised or agreed to pay the notes on which plaintiff was liable as an indorser. Plaintiff’s counsel here argue that defendant’s written proposal of June 29, 1921, is evidence of such promises or agreements, but even in that proposal defendant does not agree to pay said notes, and, furthermore, it clearly appears that said proposal was not accepted, and that further negotiations were had, resulting in the signing of the trust agreement, which for a short time was acted upon by defendant and all concerned. Nowhere in the agreement does defendant promise that he will pay said notes. And, as regards defendant advancing moneys to the Products Co., there are recitals therein that defendant “is willing to undertake the financing of the company, so far as in Ms judgment may be deemed advisable,” in consideration of the stock of the company being transferred to a trustee to be designated by him, and “upon conditions satisfactory to Mm.” This shows the clear intent of all parties to the agreement, including plaintiff, namely, that defendant’s judgment as to the amount of money he would advance is to govern. (Goodrich v. Van Nortwick, 43 Ill. 445, 446; Kendall v. West, 196 Ill. 221, 225; Temby v. William Brunt Pottery Co., 229 Ill. 540, 544.) While it is true that recitals “are not strictly any part of the contract,” it is also true that they “may have a material influence on the construction of the instrument and the determination of the intent of the parties.” (13 Corpus Juris, P. 538, sec. 502; Burr v. American Spiral Spring Butt Co., 81 N. Y. 175, 178.) Furthermore, it does not appear even from the language of defendant’s preliminary proposal that he agreed to pay out of his own pocket all the debts of the company. He states that “all debts to the company must be paid” and that he will enter into the arrangement proposed by him with the “expectation” of gradually putting the company upon its feet, and that, if he succeeds, he will turn the business back to the stockholders. His letter to plaintiff of July 29, introduced by plaintiff, gives reasons why in his judgment the trust agreement should be terminated at o’nce, for he says that “the, accounts receivable were largely uncollectible,” and that “assets valued at over $30,000 * * * became unavailable.” Furthermore, as to the evident intent of the parties to the agreement, there is no provision therein relative to defendant being repaid for payments of debts of the company. If the intention were that he individually should pay all claims against the company, in order to save it from bankruptcy, there doubtless would have been some provision relative to his being reimbursed. Furthermore, there was no evidence tending to' show that, even if Brown had succeeded in his efforts1 to keep the company out of bankruptcy,, plaintiff would have been released from his obligation as indorser on the notes held by the Gibson Co., which he had entered into prior to the making of the trust agreement. Of course, defendant might have paid the notes, but this he never agreed to do. Plaintiff’s counsel argue that plaintiff, when the agreement was made, was in a position to protect his indorsements on the notes by causing a sale of "the tangible assets pf the company, with an arrangement with the purchaser that the business of the company might be continued, and by paying said notes from the proceeds realized from such sale, and that defendant induced him to forego this probability by promising to operate the business of the company for the period mentioned and to advance money, etc. But the evidence shows that plaintiff could not have sold said tangible assets, even if he had found such a purchaser, for, at the stockholders’ meeting held on June 27, the holders of a majority of the stock expressed themselves as not favoring such a sale, and plaintiff’s suggestion, then made, was not followed.

Another of the grounds stated by the court for directing the verdict was that the evidence did not show any agreement, or memorandum or note, in writing, signed by defendant, or his duly authorized agent, whereby defendant guaranteed or became liable to pay any of the debts of the Products Co. And plaintiff’s counsel contend that “a mere arrangement between a promisor and a promisee, though it relate to a debt of another, is not within the statute of frauds.” In the view we take of this case, as above shown, we deem a discussion of the contention to be unnecessary.

During the trial, on defendant’s objection, the court refused to permit plaintiff to testify as to a conversation, not in defendant’s presence, which plaintiff testified he had with Mabee, the trustee named in the trust agreement, after the signing of the same, as to the amount of money defendant had paid out, or was going to pay out, for the company. We do not think that any prejudicial error was committed by the court in this ruling, nor in other rulings wherein the court refused to admit certain other offered testimony, which was immaterial under the issues as framed.

Our conclusion is that the judgment of the superior court should be affirmed and it is so ordered.

Affirmed.

Barnes, P. J., concurs; Fitch, J., dissents.