author: Mr. Presiding Justice Wolee

text:
    Lloyd La Sha, Appellee, v. Albert W. Benham et al., Appellants.
    Gen. No. 8,757.
    Opinion filed May 10, 1934.
    C. A. Pedderson, for appellants.
    Wm. Biester, for appellee.
   Mr. Presiding Justice Wolee

delivered the opinion of the court.

Lloyd La Sha filed his bill in the circuit court of Boone county in aid of an execution and discovery. The bill in substance charges that the complainant was a judgment creditor of Albert W. Benham, for the sum of $3,422.50; that previous to the rendition of his judgment, Albert W. Benham and Florence L. Benham, his wife, were the owners as joint tenants, and not tenants in common, of Lot 20, Block 6, of Rowan Brothers Addition in the City of Belvidere; that on February 13, 1931, while the said judgment was remaining in full force and effect, the said Lloyd La Sha, for the purpose of obtaining satisfaction on the said judgment caused a writ of fieri facias to be issued and delivered to the sheriff of Boone county, the same being the county where Albert W. Benham resided and where said real estate is situated; that said writ was in the usual form commanding the sheriff of said county that out of the goods,- chattels, lands and tenements of said Albert W. Benham he should be caused to be made the sum of the amount of said judgment with interest and costs thereon; that he should make a true return thereon within 90 days of the date thereof.

The bill further charges that said Albert W. Ben-ham, during said period of 90 days, had no goods, chattels, lands, or tenements which the sheriff could find, out of which the amount of such judgment, interest, and costs could be made, or any part thereof. The said writ of fieri facias was not satisfied in whole or in part but it was returned “not satisfied”; that prior to the rendition of said judgment, but after the indebtedness upon which the same was rendered had accrued, to wit, December 24,1930, the said Albert W. Benham and Florence Benham, his wife, made their deed to the Blackhawk Finance Corporation, and thereafter on February 9,1931, the said Albert W. Benham caused said deed to be recorded in the recorder’s office of said Boone county in Book 83 of Deeds, on page 510. It is alleged that the conveyance was made with the intention of defrauding the complainant and other creditors; that the said premises are now held by the Blackhawk Finance Corporation for the use and benefit of Albert W. Benham, for the purpose of preventing the sale of the same under and by virtue of the afolresaid execution; that said premises have been occupied by Albert W. Benham and his wife, rent free by an understanding that so long as the property belongs to the Blackhawk Finance Corporation, the Ben-hams should occupy the same without paying any rent therefor. The bill further charges that Albert W. Benham is of no pecuniary responsibility; that he has no property; that the Blackhawk Finance Corporation is a corporation without any assets and merely acting as a paper title holder; that Albert W. Benham has no other property liable under a levy and execution sale; that the judgment of the complainant still remains in full force and effect, unreversed and unsatisfied.

The bill charges that the Blackhawk Finance Corporation was organized in December, 1930, in the State of Delaware, and was admitted to do business in the State of Illinois; that said corporation was engaged in active business for only a short period, and received deposits of money from Albert W. Benham to place the money beyond the reach of his creditors; that Florence L. Benham is the wife of Albert W. Ben-ham; that said corporation was the mere creature of Albert W. Benham, and he was virtually the one that owned the property; that when Florence L. Benham made a transfer of her interest in said premises she was in reality transferring the interest in the same to her husband, but in the name of the corporation; that said premises so far as Florence Benham was concerned should be impressed with a trust in said husband as his property, and in trust for the complainant as his creditor and should be subject to the levy of the complainant’s judgment; that said property should be declared to be the property of Albert W. Benham and subject to an execution. The bill further charges there are divers persons who are indebted to Albert W. Benham; that he holds divers securities and other personal property which ought to be applied to the payment of the complainant’s judgment; that Albert W. Benham is the owner of some interest of some kind or character of personal property, or real estate, chattels, etc., which cannot be discovered and are being held by other persons or corporations ; that if the said Albert W. Benham has made any assignment of his property other than the premises in question, that such transfer, sale, or assignment is merely colorful to place the property beyond the reach of the complainant. The bill asks a full and complete discovery of such property and effects and things in action belonging to defendant, A. W. Benham, and a complete discovery of all interest of any kind or character which he may possess. It charges that the said Benham has property with equitable interests and effects of the value of $300,000, which the complainant has been unable to reach; and that David B. Beat-son, George O. Wilson, Florence L. Benham and the Blackhawk Finance Corporation, have property in their possession belonging to Albert W. Benham, the defendant. The bill prays for general and specific relief.

Each of the defendants filed his answer to the bill; the case was referred to the master in chancery to take the evidence and report to the court his conelusions of law and facts. The master heard the evidence and made his findings to which the defendant filed objection. The master overruled the objection and filed his report. By stipulation and order of the court, the objection to the master’s report was ordered to stand as. exceptions to said report. ' On a hearing of the case the court overruled the exceptions and approved the master’s report and entered a decree in accordance with the report; that the property should be considered the individual property of Albert W. Benham, and that complainant have execution on said property and sell the real estate by virtue of said execution.

There is no question but that the complainant procured a judgment against Albert W. Benham in the amount of $3,422.50 on February 13, 1931, and that execution was issued thereon and returned not satisfied; that the Blackhawk Finance Corporation was a foreign corporation but authorized to do business in the State of Illinois; that Albert W. Benham and Florence L. Benham, as joint tenants, owned the property in question and conveyed the same to the Black-hawk Finance Corporation by warranty deed. The master by his report found these facts to be true, and also found that Albert W. Benham was engaged in the business of borrowing money; that the complainant Lloyd La Sha began loaning money to Albert W. Ben-ham in December, 1930; that A. H. Benham was rapidly getting in debt and not paying back any money to his creditors from whom he had borrowed it; that Benham and La Sha were friends, but Benham falsely represented to La Sha his business; that Benham and his wife owned the fee to the premises in question as joint tenants, and not as tenants in common, until his wife deeded her interest in the property to Benham for the pretended purchase of stock in the Blackhawk Finance Corporation by making the deed to the Black-hawk Finance Corporation; that Benham kept the deed to the property in question secretly under his control until the 9th day of February, 1931; that the conveyance was made for the purpose of fraudulently hindering and delaying his creditors, among them the complainant; that La Sha had ho knowledge of the pretended conveyance of December 24, 1930; that by the apparent and undisturbed ownership of the real estate in question Albert W. Benham obtained credit from La Sha; that by fraudulent representations he obtained the money in question from La Sha. At the organization of the Blackhawk Finance Corporation the assets of the corporation, the ownership of the shares of stock, the payment for the shares of stock and the entries in the minute-book of the corporation were fraudulent, making it appear that the property in question was a part of its assets.

The master found that the loans of Albert W. Ben-ham to the Blackhawk Finance Corporation were made for the purpose of getting the money which he had out of his name and keeping same from his creditors; that Florence L. Benham, by executing a deed to the real estate in question and conveying it to the Blackhawk Finance Corporation is making a gift of her interest in said real estate to her husband; that Albert Benham and Florence L. Benham on the witness stand disclaiming any interest in the property, and that by the understanding of the parties, a secret trust was reserved for Albert W. Benham; that on January 30, 1931, Albert W. Benham was insolvent, and in order to hinder and delay and defraud his creditors he concealed, sold, and transferred his stock in the corporation; that the Blackhawk Finance Corporation was in reality Benham, and that the court should ignore the corporate existence of said corporation.

The objections filed to the master’s report (which were allowed to stand as exceptions to the same in the circuit court) raised the question, whether the evidence supports the findings of the court that the transfer of this property by Albert W. Benham and Florence L. Benham his wife to the Blackhawk Finance Corporation was made for the purpose of defrauding the creditors of Albert W. Benham.

We have examined the record carefully in the case and it is our conclusion that the master properly found that the conveyance in question was made for the fraudulent purpose of defeating the creditors of Albert W. Benham, and that the court properly overruled the exceptions to the master’s report.

The appellants claim that the court erred in granting the relief prayed for, since it is not shown that the grantor was insolvent at the time of the conveyance of the property. We think the evidence fairly tends to show that so far as the defendant’s available property was concerned at the time of the conveyance there was none that was subject to execution. The bill charges that the defendant has large sums of money secreted and hidden away so that the sheriff was unable to find it to satisfy the execution. In the case of Quinn v. People, 146 Ill. 275, the court in passing upon a case similar to this said: “It is also alleged that executions had been duly issued upon said judgment against each of the defendants thereto, and duly returned no property found. This was all the judgment debtor was required to aver and prove in order to show that it had exhausted its legal remedy. By such allegation and proof it did, for the purposes of maintaining this bill, establish the insolvency of the defendants to said judgment and showed, prima facie, that it had exhausted its legal remedy.” Under the allegations and proof of this bill the court properly found that the defendant had no property that was subject to execution.

The appellants contend that the court erred in setting aside the conveyance as fraudulent and not providing a sale subject to the homestead rights of the parties in the real estate. Under the authority of Quinn v. People, 146 Ill. 275, 282, we think that this property should be sold subject to the homestead rights of Albert W. Benham. The court in the Quinn case, in discussing the sufficiency of a decree in a similar case, uses this language: “The decree of the circuit court found that Washington Quinn had an estate of homestead to the extent of $1,000 in the lands found to have been fraudulently conveyed, and directed the master in chancery, in mailing the sale ordered, to proceed in accordance with the law in relation to the homestead estate. Counsel for appellants contend that the effect of this decree is to take the homestead so found in Washington Quinn, from his grantee, and force it back upon him. Such is not the scope of the decree. When the homestead is set off the conveyance will, under the decree, be good as to it, though fraudulent and void as to the remainder of the premises. It was clearly right to order the master in chancery, who was directed to make the sale, to set off the homestead. ... It would have been his duty, under the terms of the decree, to do so without specific directions.” The case of Iles v. Heidenreich, 293 Ill. 291, follows the Quinn case. Diets v. Hagler, 309 Ill. 381, and Krupp v. Brand, 200 Ill. 403.

The court in the decree states that, so far as the complainants are concerned, the property in question shall be treated as the individual property of Albert W. Benham and that the complainant may have execution on his judgment and sell said premises under such execution and that the defendants, Albert Ben-ham and Florence L. Benham, shall be divested of all right, title or interest to the same except the right of redemption. The question arises: Does this decree order a sale of the homestead right of the Benhams 1 In the case of Ammondson Ryan, 111 Ill. 506, the same question was raised and the court in their opinion say: “It is insisted that the court erred in decreeing the sale of appellant’s homestead to satisfy the judgment. It is a mistake to suppose that the sale of the homestead was decreed. The decree only sets aside the conveyance to the wife, and directs that the sheriff proceed to sell the lands on the execution issued upon the judgment. In making the sale on execution, the sheriff will, as in the case of any other sale under execution, take the steps for preserving the benefit of the homestead which are prescribed in the Homestead Exemption act, and the decree herein should in no manner interfere therewith or affect the homestead right. ’ ’

It is our opinion that this decree does not order the sale of the homestead but that the sheriff in selling the premises under his execution should take such steps as the statute requires to preserve the rights of the defendants’ homestead under the execution sale. We find no reversible error in this case and the judgment of the circuit court of Boone county is hereby affirmed.

Affirmed.


source: Caselaw Access Project

author: Mr. Justice Dove

license: Public Domain

text:
    The People of the State of Illinois ex rel. Oscar Nelson, Auditor of Public Accounts of the State of Illinois, Complainant, A. F. Delander, County Clerk, Appellee, v. Joliet Trust and Savings Bank, Defendant. J. E. Morrison, Receiver, etc., Appellant.
    Gen. No. 8,725.

      Opinion filed May 10, 1934.
    Robert E. Haley, for appellant.
    D. R. Anderson, for appellee.
   Mr. Justice Dove

delivered the opinion of the court.

On January 7, 1933, J. E. Morrison, having theretofore been appointed receiver of Joliet Trust & Savings Bank, filed in the circuit court of Will county his petition reciting that A. F. Delander was indebted to the bank in the sum of $4,434.51, evidenced by two notes held by the receiver; that at the time the bank closed, Delander had two checking accounts therein, one in his own name in the amount of $61.45, and another carried on the books of the bank in the name of “Albion F. Delander, County Clerk” in the amount of $7,422.10; that Delander had presented his claim to the receiver and sought to obtain a set-off and the receiver therefore sought the instructions of the court before allowing the same.

It appears from the evidence that appellee was, at the time of the hearing, county clerk of Will county and had been for the 11 preceding years, and as county clerk he received divers sums of money from various sources, such as witness fees, advance court costs in civil cases, moneys paid by persons convicted” of nonsupport and bastardy, and moneys paid by parties to redeem property from tax sales; that for convenience he kept two accounts in the Joliet Trust & Savings Bank, designated as stated in the petition of the receiver, and the amount on deposit to his credit in both accounts aggregated $7,483.55 at the time the bank closed. While the bank was a going concern, he borrowed money therefrom, evidencing the same by executing his notes and pledging certain securities to secure the payment .thereof, and these notes and securities came into the hands of the receiver when he took charge. The amount due on these notes, together with accrued interest to the date of the appointment of the receiver, aggregated $4,506.80, and the chancellor, upon the hearing, ordered that this sum be applied by said receiver as a set-off in reduction of the total claim of the appellee, that the balance of $2,976.75 be allowed as a common claim, and the two principal-notes be canceled and the collateral deposited to secure the payment thereof be returned by the receiver to the appellee. From this order an appeal has been perfected by the receiver and the record is here for review.

Counsel for appellant insists that the record in this case does not disclose what portion of the deposit of the county clerk was earned fees or what portion was due individuals, and therefore it must be presumed that the amount in the bank to his credit as county clerk was all public moneys held by him by virtue of his office, that public funds cannot be used to pay private debts and appellee’s obligation to the bank being his private debt, he should not in equity be permitted to set off the same against public funds held by him as county clerk.

Under our statute, the county clerk, before assuming the duties of his office, must execute a bond in such penalty and with such security as the county board shall deem sufficient, conditioned that he shall perform the duties of his office in the time and manner prescribed by law, and when he shall be succeeded in office, shall surrender and deliver over to his successor in office all books, moneys and other things belonging to the county and appertaining to his office. It is his duty to safely keep the moneys coming into his hands and on the first day of June and December of each year report to the county board the receipts and expenditures of his office and pay to the county treasurer at such stated times whatever amount may be due the county. The record in this case discloses that appellee had executed a bond in the sum of $15,000 as required by law, that the bank closed January 25, 1932, and appellant was appointed receiver on February 20,1932.

It is well settled in this State that a public officer is an insurer of moneys received by him by virtue of his office and is liable upon his bond for the loss of public funds deposited in a bank and lost through its failure. Estate of Ramsay v. People, 197 Ill. 572; Swift v. Trustees of Schools, 189 Ill. 584; Oeltjen v. People, 160 Ill. 409; Thompson v. Board of Trustees, 30 Ill. 99; People v. McGrath, 279 Ill. 550. Assuming, therefore, that all the money which appellee had intrusted ' to the safe-keeping of the bank was public funds and belonged to Will county, appellee was personally responsible to Will county therefor. The office of county clerk is a fee office and, under the statute, the county clerk was only required to pay to the county treasurer on June first following the closing of the bank in January, whatever sum, exceeding his fees, was due from him to the county. If, however, an unascertained portion of this deposit belonged to individuals other than appellee and he held it by virtue of his office as county clerk, he was likewise personally responsible to those individuals therefor. Whether then the amount represented by this deposit was money in which Will county had an interest or whether an undetermined portion belonged to appellee and the balance to other individuals, appellee personally was liable to such other individuals and to Will county therefor, and payment thereof was covered by the provisions of his official bond.

In Coburn v. Carstarphen, 194 N. C. 368, 55 A. L. R. 819, the facts were very similar to the facts in the instant case, except the depositor was county treasurer instead of county clerk, and in holding the money of the county deposited in the name of the treasurer as treasurer could be set off against the personal note of the treasurer, the court said: “Although the deposit in the sum of $2,801.91 was made by defendant with moneys belonging to Martin county and stands on the books of the bank in his name as treasurer, he is personally liable to the county for the moneys received by him as treasurer. He is solvent, and must account to the county for the amount of the deposit. As between the bank and the defendant, the bank is liable primarily to the defendant, and not to the county. His contention that, upon the facts agreed, he is entitled to have the amount of his indebtedness to the bank deducted from the amount due him by the bank, must be sustained, not only upon principles of justice and equity, but also upon well-supported authority. In Funk v. Young, 138 Ark. 38, 5 A. L. R. 79, 210 S. W. 143, it was held that the maker of a note to a bank, which thereafter became insolvent, may offset his indebtedness to the bank upon said note, by a deposit in his name as trustee, where he was personally liable to his cestui que trust for the amount of the deposit. The facts in that case are almost identical with those in the instant case. The decision is well supported by authorities. In the opinion of the court it is said: ‘The trend of all modern decisions is toward liberality in the allowance of set-offs in the case of insolvency of the party against whom the set-off is claimed, to the end that only the true balance may be required to be paid to the representative of the estate of the insolvent. ’ ”

In Miller v. Franklin Bank, 1 Paige (N. Y.) 444, it was held that the public administrator of the City of New York is entitled to offset against a debt from him to the bank a demand for deposits in the bank whether made in his own name or as public administrator. The court said that as between him and the bank he stood in the same situation that an attorney would who had deposited in the bank for safe-keeping the moneys collected for different clients, in one general account in his name as attorney, to be drawn out on his own check when called for. The court further said that in neither case could the bank object to pay the money to the depositor, or to allow it to be offset against a demand in favor of the bank, unless they had notice from the persons having an equitable claim thereon not to pay it.

The reasoning in the foregoing cases appeals to our sense of justice and right. While a court of equity will not generally, allow a set-off of debts occurring in different rights, special circumstances may occur creating an equity that will justify such an interposition. 24 R. C. L. 871. “Although as a general rule, equity, following the law, will .not allow a set-off of debts accruing in different rights, it is well settled that a court of equity will take cognizance of cross-claims between litigants though wanting in mutuality and set off one against the other whenever it becomes necessary to effect a clear equity or prevent irremediable injustice.” 24 R. C. L. 865. In Walker v. Doane, 108 Ill. 236, our Supreme Court said: “Where there is anything peculiar in a case, so as to render it impossible for exact justice to be done by a court of law under the statute, a court of chancery will afford relief through the medium of an equitable set-off.” In Chicago, D. & V. R. Co. v. Field, 86 Ill. 270, it was said: “There is a natural equity that cross demands should be offset against each other; and that the balance only should be recovered; and the court of chancery recognizes this principle and acts upon it in cases where the law cannot give a remedy in a separate suit, in consequence of the insolvency of one of the parties. ’ ’

Counsel for appellant insists that it would be highly inequitable to permit the private debts of the county clerk to be set off against his deposit of public funds and calls our attention to the well recognized rule that where funds are held by an individual as a public official or as agent or in any representative capacity, he has no authority to pay his individual indebtedness therewith, nor in case of deposits by fiduciaries could the bank, if it has knowledge of the trust character of the funds apply them in satisfaction of an individual indebtedness of the depositor. 3 R. C. L. 593. Clemmer v. Drovers Nat. Bank, 157 Ill. 206. Whether the Joliet Trust and Savings Bank, while it was a going concern, could have legally applied this deposit, carried on their books in the name of appellee as county clerk, to discharge his private indebtedness to the bank, does not arise on this record, nor would an answer to that question solve the question here presented for determination. The bank is no longer a going concern; it has become insolvent, and the status of the parties interested has changed, and the character of their relations altered. Appellee is personally liable to the county or to others for the amount of this deposit. The liquidation of the bank is in progress and the liquidating agent has applied to a court of equity for instructions. The receiver is not only the representative of the creditors and stockholders but he holds the assets of the bank as an officer of the court for the benefit of all persons having a legal interest in an honest and efficient control and distribution of its assets. Niblack v. Feldman, 204 Ill. App. 443.

In our opinion it would be highly inequitable and inconsistent with the principles of fair dealing not to permit this set-off and the fact that appellee had pledged securities to secure the payment of his personal note is of no importance nor does it in any way affect the equities of the parties. Neither is there any merit in appellant’s contention that the record contains no evidence tending to prove that appellee was solvent or that the sureties on his bond were financially responsible. In the absence of any proof to the contrary the county board is presumed to have done its duty and it would not have approved a worthless bond.

Insolvency is never presumed and if the sureties upon the bond of appellee were financially responsible when the bond was given it is presumed that they as well as appellee are now financially responsible and solvent.

The order of the chancellor is affirmed.

Order affirmed.


text:
    Ada D. Baker, Executrix of the Last Will and Testament of Herman P. Baker, Deceased, Plaintiff in Error, v. Grover A. Zang, Defendant in Error.
    Gen. No. 8,759.
    Opinion filed May 10, 1934.
    James N. Cummings, for plaintiff in error.
    Martin E. O’Connor, for defendant in error.
   Mr. Justice Dove

delivered the opinion of the court.

This is a suit in assumpsit instituted by Herman P. Baker against Grover A. Zang to recover the amount claimed to be due the plaintiff by virtue of a certain contract theretofore entered into by the plaintiff and his wife, Ada D. Baker, and Thos. B. Addis, and subsequently assigned to Zang. A general and special demurrer to the second amended declaration was sustained by the trial court and the plaintiff having elected to abide by the declaration as amended, a judgment was rendered for defendant in bar of the action and for costs. During the pendency of the suit, the plaintiff died and his administratrix appears as plaintiff in error in this court.

The declaration alleges that Herman P. Baker and his wife Ada D. Baker, on December 3, 1926, entered into a written agreement with Thomas B. Addis, by •the terms of which Baker contracted to convey to Addis certain real estate in the City of Kewanee, for the sum of $4,645. Of this amount $50 was paid in cash and the balance, according to the agreement, was to be paid in monthly instalments of $50 or more, until the principal was paid in full, the deferred payments to draw seven per cent interest. Under the agreement Addis was also to pay all taxes levied subsequent to 1925, keep the building on the premises insured and it was expressly agreed that the time of payment was of the essence of the contract and that all the covenants and agreements in the contract contained extended to and were obligatory upon the heirs, executors, administrators and assigns of the respective parties. The declaration then charges that Addis accepted the contract and entered into possession of the premises and made a number of payments thereunder; that some time prior to November 1,1927, Addis defaulted in his payments, and on that day, by an indorsement written on the back of said contract, Addis assigned said contract to Grover A. Zang in the following words and figures, viz.: “In consideration of $1.00 to me in hand paid, I hereby assign and transfer to Grover A. Zang, all my rights, title and interest, to the within contract. Witness my hand and seal this 1st day of November, 1927 (Signed) Thomas B. Addis (Seal).”

The declaration then charges that Zang, in consideration of said assignment, verbally promised Addis that he would assume and agree to pay the payments then due the plaintiff and perform all the conditions and obligations of the contract; that plaintiff consented to said assignment and agreed with Zang to thereafter look to bim as the sole obligor under said contract; that Zang accepted the contract and assignment, went into possession of the premises and paid'the taxes, special assessments and all the obligations and instalments as the same became due under the contract until January 3, 1929, at which time he refused to pay any further instalments or perform any of the obligations thereunder, and has made no further payments to the plaintiff.

The trial court held that inasmuch as Zang had ex-, ecuted no written instrument binding himself to the terms of the contract, he could not be charged therewith, and the provisions of the statute of frauds precluded a recovery. Counsel for plaintiff in error insists that Zang accepted the contract after the ássignment was made, went into possession of the premises covered by the instrument, made payments in accordance therewith and therefore the provisions of the original contract became mutual and binding upon both parties. In support of this contention the case of Barnard v. Huff, 252 Mich. 258, 233 N. W. 213, 77 A. L. R. 259, is relied upon. It appeared in that case that in May, 1926, Emily Bermingham sold certain real estate to Huff on a land contract and thereafter Barnard, the plaintiff, acquired the vendor’s interest therein. Huff took possession, collected the rents and made payments under the contract until October 8, 1927, when Huff transferred her interest to Christy by an assignment executed by both parties. Christy went into possession, made a written agreement with plaintiff reducing the instalments and made payments thereunder until April 13, 1928, when he executed a written assignment to Smith and Wood. Christy only executed the assignment, but Smith and Wood sent a copy thereof to the plaintiff and went into possession, collected the rents, and made payments under the contract until August 30, 1928, when Wood executed an assignment of his interest to Smith. This assignment was not signed by Smith, but he sent a copy thereof to plaintiff, took possession, collected the rents and made payments thereunder. The court, in passing upon the questions involved, stated that equitable liens and the method of their enforcement are peculiarly within the jurisdiction of equity courts; that the liabilities for the debt of a grantee of a mortgagor and an assignee of a vendee’s equitable title under land contracts are similar ; that a bare conveyance of the land or a bare assignment of the contract imposes no obligation on the grantee or assignee to pay the debt, but where he assumes and agrees to pay it, his personal liability attaches, his primary liability being to his own grantor or assignor, but it may inure to the benefit of the mortgagee or vendor; that in Michigan the assumption of the debt by the grantee of a mortgagor creates an obligation which the mortgagee may enforce in equity, but not at law and the court held that by analogy to the law of mortgages, the assignment of a land contract is a conveyance of vendee’s equitable title and the assignment binds the accepting assignee, in equity, without his signature just as the acceptance of a deed, containing an obligation to pay. the mortgage, binds a grantee of the mortgagor, in equity, although he has not signed the conveyance. The opinion then states: “By the engagements in the assignments, the assignees, Wood and Smith, made the payment of purchase price their original and personal obligation, which, under the contract, they could pay at any time. The agreement to pay the purchase price was not within the Statute of Frauds as a promise to pay the debt of another or a contract not to be performed within a year, requiring the signature of the promisor. It appears,” concludes the opinion, “that Barnard asked Smith and Wood to execute the assumption clause shortly after they took the assignment of contract, and they refused. As they became bound by accepting the assignment containing the clause, their subsequent refusal to sign it was without force. The decree will be modified to cause the deficiency judgment to run against all the defendants. ’ ’

The instant case is clearly distinguishable from the Barnard case. The opinion in the Barnard case says the assignment to Smith and Wood contained an assumption clause and held that their signatures to the assumption clause were unnecessary, as they had, by their conduct, accepted the assignment which contained this clause. In the instant case Zang took an assignment without an assumption clause. Furthermore, the Barnard case was a proceeding in equity to foreclose a land contract. The instant suit is a proceeding at law in assumpsit to recover the balance due on a contract of sale theretofore executed by the vendor of the defendant. “It is well settled that the promise of a purchaser of land to take title or pay purchase money cannot be enforced against his assignee, either in an action for specific performance or in an action for damages, unless there is an agreement to that effect on his part, even though the contract provides that the stipulations or covenants are to bind the heirs, personal representatives and assigns of the parties; but the land remains liable for the purchase money and the vendor may call upon the assignee to pay the price or surrender the land or have it sold to satisfy the debt. ’ ’ 39 Cyc. 1671. In 27 R. C. L. 567, it is said: “The purchaser’s contract to buy is a personal one and his assignee incurs by reason of the assignment alone no personal liability to the vendor for the payment of the unpaid purchase money. While the assignee cannot compel the vendor to convey without the payment of the purchase money this conditional right to a conveyanee is quite a different thing from personal liability to compulsory payment at the suit of the vendor; such liability can only result from some express or implied contract of the assignee and is not implied from the mere assignment of the original contract although followed by the possession of the land. This is true though the contract provides that it shall apply to and bind the assignees of the respective parties. ■ By the assignment it may be that the assignee becomes impliedly bound to protect his assignor against the demands of the vendor. This, however, is no concern of the vendor; such an obligation, if it does arise, does not spring from a contract expressly made for the vendor’s benefit and he cannot take advantage of it. The vendor has as against the purchaser’s assignee a remedy quasi in rem, rather than in personam, and in a court of equity may call upon him to pay the purchase money or to surrender the land or to have it sold in satisfaction of the purchase money.”

In the instant case the declaration charges that Zang orally promised Addis that he would make the payments as they became due under the contract and plaintiff agreed with Zang to look to Mm as the sole obligor under the contract. Counsel for plaintiff in error in his argument states that he does not regard these allegations as the principal part of Zang’s contract to perform but that this verbal promise of Zang, together with his acceptance of the contract and its. assignment, Ms going into possession and Ms making the payments made a valid contract on the part of Zang, which entitles the plaintiff to recover in tMs action. This argument concedes that the contract which plaintiff seeks to enforce rests partially on a parol promise and partly in writing. In determining whether such a contract is within the inhibition of the statute of frauds, it must be treated as a parol contract. Taylor v. Scott, Foresman & Co., 178 Ill. App. 487; Dougherty v. Catlett, 129 Ill. 431. Clearly, therefore, this contract contravenes that portion of the statute which' provides that no action can be maintained to charge any person upon any contract for the sale of lands, unless the contract is in writing and signed by the party to be charged therewith.

The trial court committed no error in sustaining the demurrer to the second amended declaration and its judgment is affirmed.

Judgment affirmed.


text:
    Hillis G. Swearingen, Appellee, v. Theodore Beyer, Appellant.
    Gen. No. 8,764.

      Opinion filed May 10, 1934.
    Paul A. Cushman and O. C. Kieselbach, for appellant.
    James H. Andrews, Gregg A. Young and Harper Andrews, for appellee.
   Mr. Justice Dove

delivered the opinion of the court.

On June 26, 1931, appellee and his wife, as vendors, entered into a written contract with appellant, as vendee, by the terms of which the vendors agreed that if the vendee would make the payments and perform the covenants therein mentioned on his part to be performed, they would convey to him, by a good and sufficient warranty deed, a triangular piece of land therein described, a merchantable title thereto to be shown by an abstract of title. The purchase price was $4,700, on which $2,850 was paid, leaving a balance of $1,850 due December 1, 1932, which the vendee agreed to pay vendors at the office of the First National Bank of Kewanee. A previous contract for the sale of these premises had theretofore been entered into by the parties, under. which appellant had taken possession and he was in possession thereof at the time this action was instituted. The premises were improved by an oil and gas filling station operated by the tenant of appellant, Don Clark.

On January 16, 1933, Messrs. Andrews and Young, representing appellee, wrote appellant to the effect that they represented appellee, that they had prepared an abstract of title to the property in controversy, which they inclosed with the letter, informed him that they were ready to release a mortgage upon the premises which had been executed by appellee to Greorge Keim, the release being in their hands, and advising him that they also had in their hands a deed executed by appellee and his wife conveying the property to appellant and inquiring whether appellant had any further objection to complying with the terms of the contract.

On January 19,1933, no part of the payment due December 1, 1932, having been paid, appellee, acting through his attorneys, sent by registered mail a notice to appellant to the effect that appellee, after 30 days from the receipt of the notice by appellant, would declare a forfeiture of appellant’s interest in the premises described in the contract of sale and advised him that thereafter proceedings would be instituted under the Forcible Entry and Detainer Act, Cahill’s St. ch. 57. This notice was received by appellant through the mail the same day it was sent. On January 21, 1933, the tenant in possession of the premises, Don Clark, was personally served with a written demand for immediate possession of the premises.

On February 23, 1933, this action in forcible entry and detainer was instituted before a justice of the peace, resulting in a judgment in favor of the plaintiff, from which, an appeal was taken to the circuit court, where a jury was waived and the cause submitted to the court for determination and a like judgment was rendered and the record is before this court for review by appeal.

Upon the trial, one of the attorneys for appellee testified that several days after he had sent the letter to appellant on January 16,1933, he had a conversation with appellant, in which they discussed the question of interest and the amount due under the contract and that appellant stated he did not wish to be forced to make a payment at once, that he couldn’t pay them and wished to have more time and requested that an extension be granted. Appellant’s version of this conversation was that he said the mortgage would have to be released before any parties would be interested in loaning him any money and that he never said he couldn’t or wouldn’t pay the amount due on the contract. Appellant further testified that prior to receiving the abstract of title from the attorneys for appellee, he advised the attorneys representing appellee that he objected to the title and again after the abstract was received he had it examined, received a written opinion thereon and again told one of the attorneys for appellee that he wouldn’t pay for the property until he got a clear title.

The abstract of title which was sent appellant on January 16, 1933, and which was offered and admitted in evidence upon the hearing, discloses that on January 13, 1902, Joe Zang took title to this property and that it was thereafter platted by John Zang and there is nothing to show that Joe Zang and John Zang are one and the same person. The abstract of title further discloses that on June 25, 1931, appellant and his wife executed a trust deed to Elisha A. Beadle, trustee, to secure the payment of $3,350, which was filed for record June 29, 1931, and which is a first lien upon the prem-

ises. It further appeared from the evidence that this trust deed is known as the Geo. Keim mortgage and that appellee had not discharged this incumbrance, but had procured a release therefor and placed it in the hands of his attorneys, but had paid no one any consideration therefor. This release is dated January 5, 1933. Appellee had also placed in the hands of his attorneys a warranty deed, properly executed and acknowledged by himself and wife, conveying these premises to appellant, this deed being dated January 14, 1933.

A number of errors are relied upon for a reversal of this judgment, only one of which needs to be considered. The pertinent part of the Forcible Entry and Detainer Act, Cahill’s St. ch. 57, effective at the time this action was instituted, provides that an action lies to recover possession of lands when a vendee having obtained possession thereof under a written agreement to purchase and having failed to comply with his agreement, withholds possession after demand in writing by the person entitled to such possession and that notice, either personal or by registered mail, that a proceeding under the provision of the act is to be instituted shall be given the purchaser under the contract at least 30 days prior to the institution of such proceeding.

The question presented for our consideration is whether appellant had failed to comply with his agreement and was therefore in default at the time this action was instituted so that appellee had a right to declare a forfeiture and recover possession of the premises in controversy.

It will be observed that the contract in this case bound appellant to pay appellee $1,850 on December 1, 1932. It obligated appellee to convey to appellant the premises in controversy by a warranty deed, a merchantable title thereto to be shown by an abstract of title. These covenants were mutual and neither party can compel the other to perform without first making a tender of the money or the deed and abstract showing such merchantable title. Greengard v. Bernstein, 343 Ill. 416. Where a contract imposes concurrent obligations, neither party was obligated to perform his part of the agreement before the other, and the plaintiff in an action for the return of earnest money paid under such a contract need only show that he was ready, willing and able to perform on his part if the defendant was ready to perform his. Blunt v. Kelly, 219 Ill. App. 327. See also Summers v. Hedenberg, 198 Ill. App. 460.

Appellant in the instant case contracted to pay for a merchantable title. A merchantable title is a title free from such a cloud as would render it dubious in the minds of reasonable men. Brelie v. Klafter, 342 Ill. 622; Lamotte v. Steidinger, 266 Ill. 600. A doubtful title, which a purchaser under a contract of sale of land will not be compelled to accept, is one which may be reasonably and fairly questioned in the opinion of competent persons. Street v. French, 147 Ill. 342. If the abstract shows a break in the chain of title so as to excite a serious doubt by a reasonable, prudent man as to validity of the title, and there is no explanation of the same, the title is not merchantable. Hayne v. Fenton, 321 Ill. 442. Appellee, under the contract, was required, before he could declare a forfeiture, to furnish appellant an abstract showing- a merchantable title. The abstract he furnished disclosed that on January 13, 1902, Joe Zang took title to this property by warranty deed, and that thereafter and on November 2, 1903, Henry Oliver surveyed and platted the premises, Ms certificate showing it was done at the request of John Zang, owner. To this certificate there was appended the following: “I, John Zang, owner of land described in the foregoing plat and surveyor’s certificate, do hereby adopt and approve the said plat as therein shown.” The abstract also disclosed the unreleased Beadle trust deed for $3,350, which was a first lien upon the premises.

Conceding that the letter of January 16, 1933, written on behalf of appellee, by his attorneys, was sufficient notice to appellant that appellee was ready, willing.and able to convey and cause the trust deed to be released of record, still the fact that Joe Zang took title and John' Zang afterwrard platted it discloses such a break in the title as to make the title unmerchantable in the absence of explanation in reference thereto. Counsel for appellee admit that the abstract discloses this defect, but states that if it is serious it could have been easily corrected if appellant had made any objections thereto after he had obtained the opinion from his attorneys concerning this title and that his objection thereto on the trial came too late. The ■ answer to this is that under the contract appellant was not required to point out any defects in the title, nor ■was he required to make any specific objections thereto, but the burden was cast upon appellee to furnish an abstract showing a merchantable title, and until that was done he was in no position to declare a forfeiture and institute this action.

The judgment of the circuit court is reversed and as a jury was waived, there is no necessity for remanding the cause.

Judgment reversed.


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    The People of the State of Illinois ex rel. Oscar Nelson, Auditor of Public Accounts of the State of Illinois, Complainant, v. Citizens State Bank of Durand, Defendant. M. B. Dolan, Trustee, Appellee, v. Citizens State Bank of Durand. George D. Banning, Receiver, Appellant.
    Gen. No. 8,775.
    Opinion filed May 10, 1934.
    Sm:ith & Reckhow, for appellant.
    B. A. Knight, for appellee.
   Mr. Justice Dove

delivered the opinion of the court.

Citizens State Bank of Durand, Illinois, by resolution of its board of directors, suspended business on July 29, 1932. On August 18, 1932, George D. Banning was appointed receiver by the auditor of public accounts, who subsequently instituted this suit to liquidate the affairs of the bank. On October 28, 1932, M. B. Dolan, appellee herein, filed his verified claim for a preference. Objections thereto were filed by the receiver, a hearing had and from an order, of the circuit court directing the receiver to deliver to appellee three notes, each for the sum of $500 and one note for the sum of $400, together with a certain trust deed executed by Wayne L. and Hazel B. Morton to secure the payment of the same, the receiver has prosecuted this appeal.

The facts are not in controversy. Appellee, M. B. Dolan, was, on June 4, 1932, and for some time prior thereto, and was, at the time the bank closed, its cashier and a member of its board of directors. On June 4, 1932, Dolan was also trustee of the estate of Nelson C. Hoyt, deceased, and as trustee deposited on that day with the bank the sum of $1,712.76; that prior to making the deposit five of the directors of the bank verbally agreed with Dolan that at the first regular meeting of the board of directors, which would be held thereafter, the bank, in order to secure said deposit, would by proper resolution pledge with Dolan assets of the bank acceptable to him, and that a continuance of the deposit was contingent upon such action of the board; that on June 9, 1932, at a regular meeting of the board, seven of the nine directors being present, the following resolution was adopted, viz.:

“Be It Resolved : That the President and Executive Vice-President of this bank be, and they are hereby authorized and empowered for and on behalf of this bank to pledge with Martin B. Dolan, Trustee of the Estate of Nelson C. Hoyt, deceased, and his assigns and successors as trustee of the Estate of Nelson O. Hoyt, deceased, as collateral security for the payment of any funds deposited by said trustee in this bank, any stock, bonds, evidence of indebtedness or other negotiable papers or securities belonging to this bank,, and to make substitutions therefor from time to time, for the purpose of securing the payment of any such funds to said Trustee and Ms assigns and successors and said President and Executive Vice-President are further authorized to execute for and on behalf of tMs bank, such agreement as to them shall seem proper providing for the sale of any or all of such collateral in the event of a default on the part of this bank, in the payment to the said Trustee, his assigns and successors in trust of any such funds as may be deposited in tMs bank by said Trustee.”

By virtue of tMs resolution, Dolan received from the bank three notes of $500' and one note of $400, executed by said Wayne L. Norton and Hazel B. Norton, together with a trust deed to secure the payment of the same, all dated September 10, 1927, which the bank held among its assets, and these notes and trust deed were held by Dolan at the time the bank closed. Upon .the appointment of Banning, as receiver, however, Dolan delivered them to the receiver with the understanding that they were to be held by him until the question of ownership should be determined by the court. It further appears that the beneficiaries of the Hoyt trusteesMp required that before any money should be deposited by Dolan in the bank, the bank should adequately secure such deposit.

Appellee expressly states in his brief that the fact that the funds which he had on deposit were held by him as trustee is immaterial, as he claims no preference by reason thereof, so that the question presented for decision is whether a bank organized and existing under the laws of this State may pledge some of its assets as security for a new deposit of private funds.

In Texas & Pacific Ry. Co. v. Pottorff, 54 Sup. Ct. 416, the Supreme Court of the United States held that the Act of Congress under which national banks are organized constitutes a complete system for their government, that the power to pledge assets to secure a private deposit was not granted in specific terms and that the power to pledge assets is not incidental or necessary to the general business of banking and that no such implied power exists. It appeared in this case that the First National Bank of El Paso, Texas, failed on September 4, 1931. The Texas and Pacific Railway Company was then and had been a depositor. To secure it the bank had in January, 1931, pledged $50,000 Liberty bonds and held them for the railway in the trust department of the bank. Prior to January, 1931, the bank had secured the deposit of the railway company by surety bonds. In January, 1931, howéver, the bank, in order to be relieved from paying the premiums on the surety bonds, requested the railway to accept, in substitution for the surety bonds, the pledge of $50,000 Liberty bonds. The railway company assented only on the condition that it would be as fully protected as by the surety bonds and this assurance was given by the bank and its attorney. In reliance thereof, the substitution was made. In its opinion the court says: “To permit the pledge would be inconsistent with many provisions of the National Bank Act which are designed to ensure, in case of disaster, uniformity in the treatment of depositors and a ratable distribution of assets. . . . The effect of a pledge is to withdraw for the benefit of one depositor part of the fund to which all look for protection. Thereby the legitimate expectations of a great body of the depositors are defeated and confidence in the fairness of the national banking laws and administration is impaired. It is no answer to say that the other depositors are benefited by the increased resources which the pledge brings to the bank, or at least are not harmed, since the new funds take the place of the securities pledged and are available to meet liabilities. The immediate safety of unsecured creditors depends on the bank remaining open and solvent; the pledge reduces the fund of quick assets available to meet unusual demands without any assurance that the deposit will be used to replenish this fund.” The court then held that the receiver was not estopped to deny the validity of the pledge, but could assert that right without making restitution, that the bank itself could have set aside the transaction and that the railway company is entitled to a status of general creditor only.

In City of Marion v. Sneeden, 54 Sup. Ct. 421, it appeared that the city treasurer of Marion, Illinois, applied to a surety company to become surety upon his official bond as treasurer. The surety company agreed to do this provided he would get a bank which would give satisfactory collateral security for the repayment of his deposits of the public moneys. The City National Bank of Herrin agreed to do this and thereafter delivered to the Continental Illinois National Bank and Trust Company of Chicago, as escrow agent, negotiable bonds of the par value of $23,000 under an agreement to so secure the city’s deposit. Thereupon the surety company executed the bond of the city treasurer and he made his deposits in the Herrin Bank as such treasurer. Subsequently the Herrin bank failed and the receiver instituted suit to have the pledge declared ultra vires and void and recover the bonds. In sustaining the contention of the receiver, the court in its opinion said: “Banks organized under the laws of

Illinois do not appear to possess the power of pledging assets to secure the deposit of public moneys of a political subdivision of the state. Illinois corporations have only such powers as are conferred by statute either expressly or by implication; and only those powers are conferred by implication which are reasonably necessary to carry out the powers expressly granted, People v. Chicago Cas Trust Co., 130 Ill. 268, 22 N. E. 798, 8 L. R. A. 497, 17 Am. St. Rep. 319; Calumet, etc., Dock Co. v. Conkling, 273 Ill. 318, 112 N. E. 982, L. R. A. 1917B 814. No Illinois statute confers in express terms upon banks organized under its laws either the general power to pledge assets to secure a deposit; or the general power to pledge assets to secure public deposits. A statute confers in terms the power to pledge assets to secure deposits of the States but there is none which so confers the power to pledge assets to secure public deposits of a political subdivision of the state. No reported decision rendered by any Illinois court since the enactment of the General Banking Law of 1887 holds that the alleged power exists as one incidental to the business of deposit banking. Nor is there any evidence that in Illinois such power is necessary in the conduct of the business of deposit banking.

“Ward v. Johnson, 95 Ill. 215, 217, decided in 1880, is relied upon as authority for the proposition that Illinois banks have power to pledge assets to secure deposits. That case arose under the charter of ‘The Merchants, Farmers and Mechanics’ Savings Bank,’ which was granted long before the General Banking Act of 1887. The pledge involved therein was given to secure a transaction which appears to have been a loan as distinguished from a deposit. The transaction dealt with private funds. The statement was there made that banks have authority to pledge assets to secure deposits. If that statement expresses the law of the state, Illinois banks have had for more than half a century power to pledge their assets to secure private deposits as well as deposits of public moneys of its political subdivisions. But the case has never been referred to since on this point in any reported opinion of any Illinois court. During that period, many state banks have failed; and there must have been much litigation arising therefrom; but no exertion of the alleged power on the part of any state bank has been shown.

“An authoritative determination of the question whether Illinois banks have power to pledge assets to secure the deposit of public moneys of a political subdivision of the state can be given only by its highest court. The District Court discussed, but did not decide, that question. Its decision dismissing the bill was rested on the ground that the National Bank Act as enacted in 1864 had conferred the general power to pledge assets to secure deposits; and that the power so granted had not been lessened by the later legislation. The majority of the Circuit Court of Appeals being of opinion that national banks lacked the power to pledge assets to secure deposits (except so far as conferred by the 1930 amendment) necessarily passed upon the applicable Illinois law. After careful consideration, it reached the conclusion that Illinois had not conferred upon its banks the power to pledge assets to secure deposits of political subdivisions of the state. Its reasons are set forth fully and persuasively; and the decisions of the courts of other states involving similar questions are fully reviewed. We cannot say that the Circuit Court erred in the conclusion reached.

“Since the Herrin bank was without power to make the pledge of bonds here in question, its receiver is entitled to recover them unconditionally in order that they may be administered for the benefit of the general creditors of the bank.”

In People ex rel. Nelson v. Seward State Bank, 268 Ill. App. 32, the cashier of the bank, acting under the authority of a resolution of its board of directors, entered into a contract with a township school treasurer in which it was agreed that all funds thereafter deposited by the treasurer in the bank should be and “is hereby declared to be deposited as a special fund distinct and apart from all other funds and held in the said bank by it as a special trustee or agent of the said school and/or township treasurer.” The evidence disclosed that the account was designated upon the ledger sheets as “special trustee account” but was kept and handled identically in all respects with other commercial deposits and the moneys were not kept separate. This court held and the Supreme Court denied certiorari, that a banking institution was a creature of law and is possessed of only such powers and privileges as are authorized by statute; that the statute gives to banking institutions no authority to enter into secret agreements for the benefit or preference of one depositor over another; that such a practice, if countenanced, might work a great injustice and inflict financial loss upon the unsecured depositors and would allow large depositors to absorb all or the greater portion of the assets of a bank; that fair and uniform dealing by banks with all their depositors is contemplated by the law of this State and any secret agreement to protect one, while others are left without security, even though no actual fraudulent intent is apparent, is absolutely void and of no effect.

In Knass v. Madison & Kedzie State Bank, 354 Ill. 554, it was pointed out that under the provisions of our constitution, acts of the legislature creating corporations with banking powers do not go into effect unless and until approved by vote of the People, and that section 1 of the Banking Act, Cahill’s St. ch. 16a, If 1, provides that it shall be lawful to form banks for the purpose of discount and deposit, buying and selling exchange and doing a general banking business; excepting the issuing of bills to circulate as money. In holding that this statute did not confer power on a banking corporation to enter into a contract to repurchase, at a specified price, real estate mortgage bonds sold by it, and that such an agreement was void and a bank was not estopped to set up the inyalidity of its agreement, the court said: “The rule long recognized and frequently announced by this court is, that a bank, incorporated under legislative charter, like other corporations so organized, has only such powers as are expressly conferred by the statute under which it is organized and such powers as are necessarily implied from the specific grant of power. Every power that is not clearly granted is withheld. Enumeration of powers granted implies exclusion of all others, and any ambiguity in the terms of the grant of power must operate against the corporation and in favor of the public. If a power claimed is withheld, the withholding of such power is to be regarded as a prohibition against its exercise.” In answer to the contention that the purchasers of the bonds had executed their part of the agreement and it would not be good faith to permit the bank now to refuse to perform its part of the agreement, the court quoted from Steele v. Fraternal Tribunes, 215 Ill. 190, where it is said that a contract beyond the powers conferred by the legislature is not only voidable, but void, and of no legal effect, that it could not be ratified by either party be- ° cause it could not have been authorized by either, and that when a contract is beyond the powers conferred upon it by existing laws, neither the corporation nor the other party to the contract can be estopped, by assenting to it or by acting upon it, to show that it was prohibited by those laws. The opinion then concludes:

“ A contract void because it is prohibited by law can in no manner' be enforced. The law does not prohibit and also enforce a contract (citing cases). Complainants are chargeable with notice that the old bank was utterly without power to make these repurchase agreements. The defense of ultra vires is properly urged here.”

In Commercial Banking & Trust Co. v. Citizens’ Trust & Guarantee Co., 153 Ky. 566, 156 S. W. 160, 45 L. R. A. (N. S.) 950, it appeared that the statute of Kentucky authorized banks in that State to do business upon the terms and conditions and subject to the liabilities prescribed in the statute. The statute expressly conferred the power to exercise, subject to law, such powers as may be necessary to carry on the business of banking,, by discounting and negotiating notes, drafts, bills of exchange, and other evidences of debt, and purchasing bonds, receiving deposits, and allowing interest thereon, buying and selling exchange, coin, and bullion, and lending money on personal or real security, and it was held that this provision of the statute limits and defines the business of the bank and directs that its business may only be carried on by doing the things specifically enumerated, and that the enumeration of these powers excluded other methods of banking. In its opinion the court said: “In this case the bank has exceeded its express power and under the claim of the exercise of an implied power has attempted to secure the payment of a depositor by the pledging of its assets. This is clearly an act ultra vires and unlawful. No such power has been conferred upon banks in this state, nor should authority to do so be granted anywhere. . . . There is no implication from the powers granted and certainly it cannot be said to be necessary, in order to receive deposits and pay interest thereon, that the bank should secure, by pledge of its personal assets or mortgage of its real estate, the debt of its depositor or the interest that it has promised to pay. . . '. Therefore, when deposits are received, the bank becomes a debtor to the depositor for the amount of the deposit, and, if it agrees to pay interest, for that also. These are the only terms and conditions regulating deposits and the payment of interest, and if, in addition to this, the bank may pledge its assets to the depositor, then it may exercise another most extraordinary power, which is not conferred by article 2, and not necessary for the conduct of its business. . . . The exercise of such power is therefore clearly beyond the terms of the law or any reasonable or necessary implication which the court would be authorized to deduce from the language of the statute, and would tend to lessen the usefulness of banks as great public institutions by destroying public confidence in them. Such a practice, if indulged and authorized, might work great injustice and inflict financial loss, not only upon the depositors, but upon the stockholders as well. Large depositors, if secured, might absorb the greater part of the assets of the bank, and inflict loss upon unsecured depositors, and financial ruin upon innocent stockholders under the double liability law. The law contemplates, and was evidently framed to insure, fair and uniform dealings by the banks with all of their depositors. A secret pledge to secure one, while others are left without security, although it may be without specified intent to defraud, would nevertheless, in case of loss, justify such an inference. Public policy will not, therefore, tolerate a practice which might, sooner or later, in the event of financial trouble with the bank, enable it to pay and protect the favored few at the expense of the equally deserving many. If the fact was known that a bank had secured some one or more of its depositors, and left the others unsecured, no prudent person would deposit with it. No bank would advertise that it engaged in such a practice, because depositors who were not provided for would be driven away. The very fact that the transaction is one that will not stand the test of publicity is a strong argument against its legality, as well as its necessity. Banks publish statements of their assets, and individuals deposit on the faith of these published statements. It is well known that good statements as to assets induce people to deposit their money in banks making such statements. It would be a crowning act of injustice to hold that deposits thus induced are nevertheless cut off from sharing in these assets until some unknown favored few, who have been secretly secured, are satisfied; that it would be a palpable fraud on the part of the bank thus to procure deposits, when its assets were secretly pledged. . . . The authority to borrow money and pledge the bank’s assets therefor is not at all analogous to its power to pledge its assets in order to secure deposits. In the conduct of its business, it may become, and frequently is, necessary for a bank to convert its commercial paper into cash, and where it cannot do so conveniently or advantageously by rediscounting it, the bank, with perfect propriety, may borrow money upon the security of its assets; and this right is everywhere recognized as one of the implied powers which a bank has, and may exercise, where no direct authority authorizing it to borrow money is given. . . . There being no express authority given to a bank to secure a deposit by pledge of its assets, and it being apparent that such a practice would have a tendency, and pave the way, to the perpetration of fraud by putting it in the power of the officers of a bank to give a preference to favored customers, it cannot successfully be maintained that a bank has the implied right or power to do so. Banks undoubtedly have the right to do many acts and things not expressly authorized by their charters, or specifically designated in the general laws adopted for their organization, regulation, and government. These are termed implied powers, but such powers are those found necessary to enable the banks properly and expeditiously to carry out and enjoy the powers, rights, and privileges expressly given them. Before a bank should be adjudged entitled to exercise any power not expressly given, it should be clearly established that such power is essential to the proper conduct of its business, and necessary to enable it properly to enjoy, use and carry out its express powers. When such test is applied to the claim of right, on the part of a bank, to prefer one of its depositors over another, it is apparent that the right should be denied. The exercise of such a power would necessarily be fraught with great possibilities for the perpetration of fraud, and would undoubtedly have a tendency to destroy the faith of the depositing public in banking institutions, ... If banks are made to observe strictly the law, and not allowed to divert their assets from their proper and legitimate channel, it will be in rare instances indeed that depositors will feel the need of special security for their funds when placed in banks. Sound business banking principles demand that no bank should be permitted, under any circumstances, to secure any depositor by a pledge of its assets.”

In State Bank of Commerce of Brockport v. Stone, 261 N. Y. 175, 184 N, E. 750, 87 A. L. R. 1449, relied upon by appellee, it appeared that the State Bank of Commerce of Brockport, New York, lodged with the treasurer of the Farm Department of the Monroe County Farm and Home Bureau Association, certain bonds which were assets of the bank, in order to retain a deposit of the association and to obtain an additional deposit from it. The bank became insolvent and this was a proceeding brought by the superintendent of banks to recover the pledged bonds. The Court of Appeals held the agreement contrary to law, beyond the power and authority vested in the officers of the bank, and in its opinion pointed out that there was no statute in New York requiring or authorizing the pledging of assets of a State bank for the security of such deposits, stated that the association was a private deposit and called attention to the fact that the objections which have been made to the pledging of a bank’s assets to secure such deposits are, first, that it gives extra, secret protection to the secured depositor at the expense of the unsecured; and, second, that the bank invites the public to deposit moneys upon a misrepresentation of its financial condition, as its published periodical statements contain no mention of these' secret withdrawals of its assets. The court cited numerous State and Federal decisions and concluded: “The few authorities which may seem to tend to an opposite conclusion have special features which distinguish them, or else have not been followed in the recent trend of authorities. Leonard Co-Operative Creamery Ass’n v. First State Bank of Leonard, 168 Minn. 28, 209 N. W. 631, was decided before Farmers’ and Merchants’ State Bank of Ogilvie by Veigel v. Consolidated School District No. 3, of Kanabec County, 174 Minn. 286, 219 N. W. 163, 65 A. L. R. 1407, above quoted. Ward v. Johnson, 95 Ill. 215, treated the money as if it were a loan. Ahl v. Rhoads, 84 Pa. 319, fails to discuss this point, and Citizens’ State Bank of Chautauqua v. First National Bank of Sedan, 98 Kan. 109, 157 P. 392, L. R. A. 1917A, 696, dealt with a pledge authorized by statute.

“The prevailing view that banks are unauthorized in the absence of statute to secure private deposits by a pledge of assets has received favorable comment in the law reviews. See 45 L. R. A. (N. S.) 950, note; 77 Univ. of Penn. Law Rev. 916; 79 Univ. of Penn. Law Rev. 608; 41 Yale Law Journal, 1076; 22 Ill. Law Rev. 449.

“We share these opinions expressed by the highest courts of other states from which we have so copiously quoted. Reason as well as authority indicates that a bank has no implied power to pledge its assets as security for private deposits. To open the door to such a practice would permit officers and directors to favor their relatives and friends, submitting our entire banking system to justifiable suspicion. Faith in the honesty and integrity, impartiality, and fairness of our banks is the backbone of credit and the strength of commercial enterprise.”

The court, however, in this case, held that inasmuch as the bank had received the benefit of the deposit, it would not be just for the bank or its creditors to retain the deposit and refuse to perforin the contract, and ordered that the pledged bonds need only be returned to the superintendent of banks upon payment of the full amount of deposit with interest.

Following the report of this case in 87 A. Ill. 1449, there is an annotation, beginning on page 1456, and after stating the holding of the reported case, it is said that the majority of the other cases which hold that a pledge of assets to secure deposits is ultra vires, hold that there can be no estoppel to set up the invalidity of the pledge. This was the holding of the United States Supreme Court in Texas & Pacific Ry. Co. v. Pottorff, supra, and City of Marion v. Sneeden, supra, and of our own Supreme Court in Knass v. Madison and Kedzie State Bank, supra, wherein the court declined to hold that because the bank received the purchase price of the bonds which it had previously sold, it was thereby estopped from setting up the invalidity of the repurchase agreement.

We unhesitatingly approve the language of the Circuit Court of Appeals used in Sneeden v. City of Marion, 64 F. (2d) 721, where it is said: “It does not appear to us as worthy of judicial approval that the secured depositor may take advantage of the ultra vires act of the bank and assert an estoppel grounded upon such act. It had no right, in making the deposit, to rely upon a preference in the form of an unlawful transfer of assets. Otherwise both parties, bound to realize the illegality of the transfer, might, in the face of such unlawfulness, agree to make the transfer, saying each to the other, ‘though the transfer is not authorized by law, yet we will make it and accomplish the desired result despite its illegality, for neither may hereafter rescind without restoring the original status.’ We do not approve of the accomplishment of an illegal result by way of any such unconscionable use of the doctrine of estoppel.”

Finally counsel for appellee cite Nelson v. Colegrove & Co. State Bank, 354 Ill. 408, as sustaining Ms contention calling our attention to the fact that the Supreme Court there recognized the right of a pledgee to sell pledged property under a contract made by a State bank. That is true, but the facts in that case were that the State Treasurer deposited funds in his hands as State Treasurer in the Colegrove Bank, accepting as security therefor bonds which had been loaned to the president of the bank for that purpose by one of its stockholders. Counsel for appellee overlook par. 29, ch. 130, Cahill’s Illinois Revised Statutes, 1933, which prohibits the moneys in the State Treasury to be deposited in any bank until such bank shall have deposited securities with the State Treasurer equal in market value to the amount of moneys deposited, and it was under this express authorization that the State Treasurer acquired the pledged bonds in order to insure the payment of his deposit of public funds. Par. 29, ch. 130, supra, and par. 11, ch. 16a, Cahill’s Illinois Revised Statutes, 1933, which directs that a receiver of a closed bank shall deposit daily all moneys collected by him in a State or National bank selected by the auditor, who shall require of such depository satisfactory securities or satisfactory surety bond for the safe-keeping and prompt payment of the money so deposited, are the only references in our statutes concerMng the pledge of assets of a bank to secure a deposit.

In the instant case appellee’s deposit was not a special deposit in the sense that the identical money deposited was to be returned to the depositor, but it was identical in all respects with all other commercial deposits. Our Banking Act provides that banks may be organized to receive deposits, loan money and do a general banking business. If any power exists which authorized the board of directors to pass the resolution it did, and for the bank to pledge the Norton notes and trust deed to secure appellee’s deposit, it must be found in this authorization to do a general banking business. In the Knass case, supra, it is said these words are used in their common and ordinary sense and that the usual powers exercised by banks in doing a general banking business are to loan money, discount notes, receive deposits and deal in commercial exchange. Unless the power to pledge its assets may be said to come within the meaning of the words “general banking business ” or is necessarily implied by the authorization to do “a general banking business,” it falls without the powers granted and is prohibited.

We do not regard anything we have said here to be in conflict with the decision in Ward v. Johnson, 95 Ill. 215, as the question presented for decision in that case was whether the Merchants, Farmers and Mechanics’ Savings Bank had power to borrow money and issue investment certificates secured by a trust deed. In the course of its opinion, the court said that the bank was authorized to contract and agree with persons desiring to make deposits or loan money as to terms and that it might execute its bond, note or certificate as evidence of the indebtedness and secure the same by pledge or chattel mortgage or note, securities or by real estate mortgage or trust deed just as should be mutually agreed. The opinion then stated that no reason had been suggested and the court was unable to conceive any, why a system of securing loans and deposits generally in a particular way was objectionable. As stated in other cases commenting upon this decision, this opinion was written long before the present Banking Act became effective, and the court treated the transaction under consideration there as a loan and not a deposit. Furthermore, there was nothing secret about the transaction there involved, as the trust deed executed by the bank was of record, so all had notice, actual or constructive, of its provisions.

There being no express provision in our statutes authorizing the pledging of the assets of a State bank to secure a deposit of private funds and being clearly of the opinion that such power is neither implied nor necessary in order to carry, out any of the powers expressly conferred by law upon a State bank, it follows that the resolution of the board of directors of the Citizens’ State Bank of Durand and the subsequent pledge of the Norton notes and trust deed to secure appellee’s deposit were ultra vires and void. Being illegal and void, we are further of the opinion that appellant is not estopped from setting up the invalidity of the action of the board of directors and he is entitled to retain the pledged assets for the benefit of all the creditors of the bank.

The order appealed from is therefore reversed and this cause is remanded to the circuit court with directions to enter an order denying appellee’s claim for a preference, directing appellant, the receiver, to retain the Norton notes and trust deed for the benefit of all the creditors of the bank, and to allow the claim of appellee as a general claim only.

Reversed and remanded with directions.


author: Mr. Justice Huffman

text:
    L. F. O’Brien, Administrator of the Estate of Jacob D. Gray, Deceased, Appellant, v. The First Galesburg National Bank and Trust Company, Appellee.
    Gen. No. 8,599.

      Opinion filed May 10, 1934.
    Leo P. Baerd, for appellant.
    Burrel Barash, for appellee; George A. Lawrence, I of counsel.
   Mr. Justice Huffman

delivered the opinion of the court.

On June 8, 1929, Earl J. Gray gave a chattel mortgage to his father, Jacob D. Gray, to secure the payment of his note in the principal sum of $10,000. The note and mortgage were due on December 8,1930. The chattel mortgage covered a long list of personal property, including a largó amount of livestock. It also included a great quantity of other personal property in the nature of farming equipment, portable frame buildings, and household furnishings, which are not involved in this case. On December 15, 1930, the parties filed in the office of the recorder of Knox county their extension agreement of the mortgage, extending the payment thereof to December 8,1931, and reciting that at that time the sum of $10,900 was due, upon the principal and interest.

Subsequent to the filing of the extension agreement, the father, Jacob D. Gray, died, and L. F. O’Brien became the administrator of his estate. Appellee banking company held a judgment against Earl J. Gray, upon which on December 18, 1931, it caused execution to issue in the sum of $5,946.89, which was placed in the hands of the sheriff, and the sheriff pursuant thereto levied upon certain personal property of the said Earl J. Gray. Following this, appellant as administrator of the estate of Jacob D. Gray, deceased, filed with the sheriff his notice of claim to 13 head of brood sows, nine head of calves, and one black bull, under and by virtue of the aforesaid chattel mortgage given by Earl J. Gray to his father on June 8, 1929. A stipulation was at that time entered into whereby the appellant, as administrator, proceeded to foreclose upon the chattel mortgage and sell the property claimed to be covered thereby; and to bring into court the proceeds realized from the items of property in controversy herein, to await the result of this trial of the rights of property.

This cause was heard before the judge of the county court of Knox county. The issues were decided in favor of appellee banking company, and the appellant has • prosecuted this appeal from the judgment rendered.

The sale of the property was had on March 10,1932, pursuant to the aforesaid stipulation. Upon the trial of this case the evidence failed to establish that the animals in question herein were those described in the chattel mortgage, or the first increase of those described in the mortgage; but it does demonstrate that they were descendants of those described in the mortgage, and either the direct increase from such animals or the increase of the increase therefrom.

The common law rule is that the offspring or increase of domestic animals belongs to the owner of the dam or mother, and the increase of the increase ad infinitum comes within the rule and the same belong to the owner of the original stock. 1 R. C. L. 1070; 3 C. J. 22. This is based upon the rule that the offspring of animals, as well as the growth and increase of property, follows the ownership of the property itself. Hazelbaker v. Goodfellow, 64 Ill. 238, 242.

This State has adopted the rule that a chattel mortgage in using the words, “grant, sell, convey and confirm,” thereby transfers and conveys the title to the property from the mortgagor to the mortgagee. VanZele v. Cleaveland, 208 Ill. App. 387, 393. Pursuant to this rule it has consistently been held in Illinois that the mortgagee being the owner of the legal title to the mortgaged chattels was entitled to the increase therefrom. Gundy v. Biteler, 6 Ill. App. 510; VanZele v. Cleaveland, supra; American Trust & Savings Bank v. Gladu, 258 Ill. App. 156.

Two separate and distinct rules with reference to the increase of mortgaged livestock are observed in the various jurisdictions. The first of these rules is the one just above referred to which is in force in this State, to the effect that a chattel mortgage transfers and conveys title to the mortgaged chattels from the mortgagor to the mortgagee, and the mortgagee being the owner of the dam is entitled to all increase therefrom. This right exists by virtue of his ownership of the mortgaged dam. He being the owner thereof, it necessarily follows that he is owner of the increase therefrom. The second rule as observed in some jurisdictions, is to the effect that the chattel mortgage is regarded as only establishing a lien upon the mortgaged animal, and not transferring title thereto to the mortgagee. Where a chattel mortgage constitutes only a mere lien upon domestic animals, it does not include their increase, unless the mortgage expressly so provides; but where the mortgagee is vested with title by virtue thereof, the same extends to the increase. Brown v. Schwab, 27 Ariz. 457, 233 Pac. 593, 39 A. L. R. 150.

It is insisted by the appellee in this case that the rule that the increase of mortgaged animals is covered by the mortgage should be limited to the first increase from the mortgaged dam itself. The mortgagee’s right to the first increase being based upon the rule of ownership of the mortgaged dam, we know of no way the rule as urged by appellee could be applied. The same right that entitles the mortgagee to the first increase entitles him to the increase of the increase. The mortgagee being the legal owner of the original source or stock, there is nothing to abridge his rights or limit them to the first increase. He, being the owner of the mortgaged animals, is entitled to the increase therefrom to an indefinite period, so long as the mortgage exists, and there is no way to cut off his right to such increase, whether it be the first increase of the mortgaged animals or the increase of the increase.

We are not unmindful of the argument of appellee as to the difficulty of applying this rule to livestock, over a period of two or three years, but because a rule of law is difficult of application in certain cases, does not render it any the less operative.

The mortgage in this case uses the words “grant, sell, convey and confirm. ’ ’ This State is converted to the rule that under such circumstances, the mortgaged property is thereby transferred and conveyed to the mortgagee, and he becomes the legal owner thereof. He, being the legal owner, by right of his ownership is entitled to the increase from such animals, and in the absence of some act upon his part, nothing transpires to divest him of his right to the natural increase of the animals to which he holds title, and this rule is not limited to the first increase therefrom, but includes the increase of the increase during the existence of such mortgage.

It therefore follows that the judgment of the county court of Knox county is erroneous and the same is hereby reversed, and this cause is remanded with specific directions that said county court shall make and enter its judgment herein finding that the animals ' in question were covered by the chattel mortgage and that appellant is entitled to the same.

Judgment reversed and remanded with directions.