author: Mr. Justice Friend

text:
    Louis E. Nelson et al., Appellees, v. Paul F. Amling et al., Defendants. Estelle R. Firebaugh et al., Appellants.
    Gen. No. 42,495.
    Opinion filed June 16, 1943.
    Rehearing denied June 28, 1943.
    Franklin Rarer, of Chicago, for appellants.
    Whitty & McGah, Sherman & Lewis and Arthur Abraham, all of Chicago, for appellees.
   Mr. Justice Friend

delivered the opinion of the court.

Plaintiffs filed a complaint in their own behalf as Trustees under a Stock Voting Trust Agreement, made pursuant to and as part of a plan of reorganization adopted by the security holders and approved by the United States District Court in a proceeding there instituted for the reorganization of 839 Lake Street Building Corporation, against the owners of the Stock Voting Trust Certificates, issued to the security holders pursuant to the plan, asking the court to construe and interpret the agreement under which they were acting as Trustees, as granting to them the authority and power, in their discretion, to vote the shares of stock of the new corporation so held.by them for the conveyance of all property acquired by the new corporation to Liquidating Trustees under a Liquidation Trust. Certain of the Voting Trust Certificate owners were personally named as defendants, as representatives of all, and the court prescribed the form of notice to be given to the owners of the Voting Trust Certificates of the pendency of the suit. This notice provided that the certificate owners might appear in the case and be heard on the matters in issue. In response to the notice certain of the owners of the Voting Trust Certificates entered their appearances' .and filed answers. The cause was heard by the chancellor on the complaint, answers and replication and on evidence adduced in open court, and a decree was entered construing the Stock Voting Trust Agreement' as giving the Stock Voting Trustees power and authority, in their discretion, to vote the shares of stock for the conveyance of all the property of the new corporation to Liquidating Trustees under a Liquidation Trust, .but the decree did not prescribe the form nor the terms and conditions of the Liquidating Trust Agreement, other than to direct that it should preserve the substantial rights and interests of the owners of the Stock Voting Trust Certificates. From this decree the owners of the Stock Voting Trust Certificates have taken an appeal on the two principal grounds (1) that the court was without jurisdiction to construe and direct the plaintiff trustees on the proposition for which they sought the construction and direction of the court, and (2) that the court erred in construing the Stock Voting Trust Agreement as granting authority to the Trustees to vote the shares held by them for the conveyance of all the property of the corporation to Liquidating Trustees under a Liquidating Trust Agreement.

From the undisputed facts it appears that a corporation known as the 839 Lake Street Building Corporation held legal title to the real estate located at that address in Oak Park, Illinois. The premises were improved with a six-story apartment building, consisting of some 64 small apartments which were completely equipped with furniture, likewise owned by the corporation, and operated .as an apartment hotel. There was an outstanding first mortgage bond issue in the amount of $252,700 and a second mortgage bond issue for $94,000, both secured by trust deeds conveying the property to trustees.

. In November 1936 a proceeding was instituted in the United States District Court, under section 77B of the Bankruptcy Act, for the reorganization of the financial structure of the building corporation. The plaintiffs in the suit at bar, who constituted a bondholders’ committee in the reorganization proceeding, and their attorneys, prepared and submitted a plan of reorganization of the debtor corporation which was adopted by the creditors and the debtor, and was confirmed by decree of the United States District Court on July 9, 1937. That plan provided for the organization of a new corporation under the Business Corporation Act of Illinois. (Ill. Rev. Stat. 1937, ch. 32, par. 157.1 et seq. [Jones Ill. Stats. Ann. 32.001 et seq.]), by the name of Scoville, Inc., for the purpose of taking over all the assets and business of the debtor with a capitalization of $385,200, consisting of 3852 shares, to be divided into 2527 shares of Class A preferred stock of the par value of $100,940 shares of Class B stock of the par value of $100, and 385 shares of. Class C stock of no par value. The Class A stock in the new corporation was issued to the first mortgage bondholders of the debtor corporation in full satisfaction of that debt; the Class B stock was issued to the second mortgage bondholders in full satisfaction of that debt; and the Class C stock was issued to the owner of the stock of the debtor corporation in full satisfaction of the equity of redemption.

■ As a further part of the plan of reorganization, the decree of the Federal Court provided for the delivery of the stock of the new corporation to five voting trustees, to be held for five years under a Stock Voting Trust Agreement, which was approved by the court and made a part of the plan. In furtherance of the plan plaintiffs caused to be formed under the Business Corporation Act of Illinois a new corporation named Scoville, Inc., whose charter provided that the duration of the corporation was. to be perpetual. The new corporate charter prescribed the amount and character of the shares of stock to be issued, and the preferences, restrictions and special rights of each class. It provided that Class A stock shall bear noncumulative dividends of 3 per cent per annum, payable out of net earnings; that Class B stock shall bear noneumulative dividends of 1 per cent per annum, also payable out of net earnings; that Class A and B stock shall be redeemable, in whole or in part, by the corporation as the board of directors may from time to time determine; and it sets up a sinking fund out of net earnings for redemption purposes. Under this provision some 99 shares of Class A stock have been redeemed out of the net earnings of the operation of the business, and dividends have been declared and paid on Class A and Class B stock.

In pursuance of the provisions of the plan, a Stock Voting Trust agreement was entered into on October 1, 1937, in which plaintiffs are named as Stock Voting Trustees. The preamble of this agreement states that the stock voting rights in connection with the stock are .vested in the Trustees in order to secure continuity and stability of policy and management. Salient provisions of the agreement dealing with the subject of the termination of the Stock Voting Trust provide that the agreement shall terminate in five years, without notice or action on the part of the Trustees, but may be terminated at any earlier time by resolution of a majority of the Stock Voting Trustees, or upon written direction of the holders of 51 per cent of the Class A Voting Trust Certificates, and also prescribe a referendum by the Class A Certificate Holders for the extension of the Voting Trust Agreement beyond the period of five years. The agreement com tains a provision that in the event of dissolution or a total or partial liquidation of the corporation, the assets are to be distributed among the Certificate Holders in the proportion of 87% per cent of the sum realized from the sale or liquidation to Class A stock, 7% per cent to Class B stock, and 5 per cent to the holders of Class C stock.

' In May 1938 a final decree was entered in the United States District Court finding that the plan had been carried into effect and releasing its assets from the jurisdiction of the court, and since the reorganization proceeding was consummated, Scoville, Inc. has owned and operated the property as an apartment hotel. Books of account were opened and kept by the corporation, and as heretofore stated, dividends were declared on the first two classes of stock and some of the shares of Class A stock have been redeemed out of the net earnings of the operation of the business. Be-turns for federal income taxes for 1938 and subsequent years were prepared and filed by the corporation.

It appears from the evidence that plaintiffs, in setting up the books of account of the corporation, valued the tangible assets, including land, buildings and furnishings, at a total of $393,342. The Commissioner of Internal Revenue, in checking the income tax returns filed, questioned the valuation of the property as fixed by the corporation for the purpose of taking credit for depreciation, and after examining certain available data as to the costs of the improvement, a compromise was effected by the commissioner and the auditor "of the corporation whereby the value of the property as of October 1, 1937, the date that the corporation acquired the title under the reorganization, was fixed at $268,000. This reduction resulted in a substantial decrease in the amount of depreciation which the corporation was entitled to receive as a credit against income for income tax purposes, so that on a revision of the tax return the corporation was assessed additional income taxes for 1938, 1939 and 1940. From a computation by a certified public accountant introduced in evidence, it appears that the income tax for the year 1941 will probably exceed $2,000. In view of the mounting federal income taxes on the corporate property, plaintiffs conceived the idea, after an examination of the applicable provisions of the Revenue Law and authorities construing them under similar situations, that the income distributed or distributable to the beneficiaries under a liquidation trust would not be taxable to the trust, and that the operation of the trust, without the interposition of the corporate form, would, as they believe, result in substantial savings to the cestuis que trustent; and on oral argument their counsel reiterated the allegation of their pleadings that the purpose of the suit, asking the court to construe and interpret the Stock Voting Trust Agreement as granting them the authority and power, in their discretion, to vote the shares of stock of the new corporation so held by them for the conveyance of all its property to Liquidating Trustees under a liquidation trust, was to effect substantial savings to beneficiaries through the avoidance of federal income taxes anticipated under a liquidation trust.

Plaintiffs claim to derive the power to vote the stock for the conveyance of the corporate property to the liquidating trust from Article III of the Stock Voting Trust Agreement, which reads:

“Until the Stock Voting Trustees shall have disposed of the shares of Capital Stock, pursuant to the provisions of this agreement, they shall, except as hereinafter otherwise provided, possess and in their discretion shall be entitled to exercise in person or by their nominees all rights and powers of absolute owners in respect of the Capital Stock of the Corporation held by them, including the right to vote thereon and to take part in and consent to any corporate or stockholders’ action of any kind whatsoever and to receive dividends on said Capital Stock, and it is expressly understood and agreed, except as hereinafter otherwise provided, that the Certificate Holders shall not have any right in respect of any such Capital Stock held by the Stock Voting Trustees to vote or take part in or consent to or in any way control or limit any corporate or stockholders’ action of the Corporation. The right to vote shall include the right to vote for election of directors and, except as hereinafter otherwise provided, in favor of or in opposition to any resolution or proposed action of any character whatsoever which may be presented at any meeting or which may require the consent of stockholders of the Corporation. Without, by enumeration, limiting such general right, it is understood that such action or proceeding may include the mortgaging and/or pledging of all or any part of the property and assets of said Corporation, the selling of any part of the property and assets of the Corporation which shall be less than all or substantially all of such property and assets, the amendment or alteration of the certificate of incorporation and/or by-laws of said Corporation and the increase or decrease or change in classification of the Capital Stock of said Corporation, except as limited by the Charter of the Corporation. The Stock Voting Trustees shall not at any meeting of the stockholders of the Corporation, vote for the sale of all or substantially all of the property and assets of the Corporation unless written notice of the terms of said sale shall be given by mail to the registered holders of all the Stock Voting Trust Certificates outstanding hereunder (at the addresses furnished respectively by such holders to the Stock Voting Trustees), not less than twenty (20) days prior to the date fixed for the meeting of stockholders at which it is proposed to vote for the sale of all or substantially all of the property and assets of said Corporation, nor shall any such action be authorized if at or prior to the date fixed for said meeting the holders of Stock Voting Trust Certificates representing not less than Zdyzfo of the Capital Stock of the Corporation then held by the Stock Voting Trustees shall in writing advise the Stock Voting Trustees of their objection and dissent thereto.”

The court, construing the foregoing article as expressly authorizing the trustees to make the proposed conveyance, found that “the administration of said trust through a corporate form results in great burden of administrative detail involving the filing of numerous periodical reports with the state and federal government, requiring burdensome work, and results in heavy franchise, capital stock and income taxes arising merely out of the circumstance that said trust. is administered through the corporate form; that no advantage whatever accrues to the beneficiaries by reason of the administration through a corporate form; that the true intent and purpose of the reorganization of 839 Lake Street Building Corporation was to effectuate and facilitate the liquidation of the premises for the benefit of the outstanding certificate holders and the owner of the equity; that the true intent and purpose of the Voting Trust Agreement was to liquidate the premises for the benefit of the holders of the trust certificates under the trust agreement, and to distribute the proceeds in accordance with the terms of the trust agreement; that no advantage accrues to the holders of Voting Trust Certificates by virtue of the operation through a corporate form, but on the contrary the administration of the trust through a liquidation trust would more accurately reflect the true intent and purpose of the Stock Voting Trust Agreement; [and] that it is to the best interest of the Voting Trust Certificate holders that the premises be conveyed to a liquidation trust” which shall “preserve in every detail the rights of the holders of the Stock Voting Certificates.”

It is extremely doubtful whether the enterprise can escape income tax liability through the proposed change, since under the facts and circumstances of the existing organization the corporation will, in all likelihood, continue to be assessed for income taxes until it is dissolved and the property distributed, either in cash or in kind, to the beneficial shareholders. Swanson v. Commissioner of Internal Revenue, 296 U. S. 362; Helvering v. Combs, 296 U. S. 365; United States v. Rayburn, 91 F. (2d) 162. The courts in those cases evidently proceeded on the theory that for income tax purposes the character of the enterprise, as to whether it is an association for profit or a liquidating trust, is determined from its history, its purpose as shown by the instrument creating it, the business it conducts, the disposition of the income, and the efforts made to dispose of the assets and distribute the proceeds. In view of plaintiffs’ allegation and admission of the reason assigned for the proposed change, the Commissioner of Internal Revenue or the court that may be called upon to pass on the question, is not likely to deviate from the established practice of taking into account the character, history and purpose of the corporation, and resolve the question in favor of plaintiffs. Until the property is actually liquidated, no matter by what name the corporation may be designated, it will still be operating a hotel or an apartment building through its manager and employees, for which it has purchased furniture, bedding, silverware and other equipment necessary for the operation of the enterprise, and through which it has realized a profit, paid dividends to its shareholders, and retired some of its stock.

However, aside from the foregoing considerations, the principal question presented is whether the court’s construction of the agreement, in effect changing the existing plan of reorganization and substituting an entirely different plan, can be approved under the circumstances presented. The decree found that “the true intent and purpose of the Voting Trust Agreement was to liquidate the premises for the benefit of the holders of the trust certificates under the trust agreement, and to distribute the proceeds in accordance with the terms of the trust agreement,” but plaintiffs do not adopt this theory of the case; they stand-squarely on the contention that Article III expressly .authorizes and empowers the Stock Voting Trustees to make the proposed conveyance, and that no limitations will be implied upon an express power given to the Trustees, although expressed in general terms. Specifically they invoke their authority from that part of Article III which provides that they shall “be entitled to exercise ... all rights and powers of absolute owners in respect of the Capital Stock of the Corporation held by them, including the right to vote . . . in favor of or in opposition to any resolution or proposed action of any character whatsoever . . . or which may require the consent of stockholders of the Corporation.” Basing their case on these provisions, they argue that the “principal action of a corporation which would require the consent of the stockholders would be the disposition of all or substantially all of the property of the corporation,” and assuming, as they say, “in the construction of this instrument that we are going to follow its express terms, it is clear that the stock voting trustees have precisely the power which is given to them by the express words of the instrument, that is to say, the power to vote the stock of the corporation in favor of or in opposition to any resolution or proposed action which may require the consent of the stockholders of the corporation,” therefore “the only question presented then is whether or not the stockholders of the corporation may authorize the disposition of all or substantially all of the property and assets of the corporation.” They answer the question posed by concluding that “if the holders of all of the stock of the corporation have that right, then that right is vested in the stockholding trustees under the express provisions of Article III of the Trust Agreement.”

We do not think the agreement, taken as a whole, as it must be, and considered in the light of the plan for reorganization pursuant to which it was drawn, and the purpose for which the voting trust was created, is susceptible of either the construction decreed by the court or that sought to be given it by plaintiffs. There is no. support for the finding that the true intent and purpose of the agreement was “to liquidate the premises for the 'benefit” of the beneficial shareholders, “and to distribute the proceeds in accordance with the terms of the trust agreement.” The plan submitted to the United States District Court by plaintiffs' who then constituted the bondholders’ committee, ássented to by the shareholders, and approved by the court, contemplates no such primary purpose. It was, rather, a constructive plan designed to reorganize the debtor corporation so as to enable it to carry on its business through a change in the financial structure of the enterprise, which modified the rights of shareholders through the issuance of new securities, and provided for an agreement vesting in the trustees the voting rights in respect to the stock “in order to secure continuity and stability of policy and management,” and not for purposes of liquidation. Nothing could express more clearly the purpose and intent of the plan and agreement than the preamble thereof; and the carefully prescribed provisions for conducting the enterprise as a going concern, the payment of dividends, retirement of stock, and the duration and renewal of the trust, all indicate that it was the purpose and intent of the parties who submitted the plan, the shareholders who assented thereto, and of the court which approved it to continue the debtor corporation and preserve the enterprise. Nowhere in the plan, the Trust Agreement, or in the articles of incorporation of the new company, is there a provision requiring the sale of the corporation within any period of time for the benefit of the certificate holders. The only liquidation mentioned is a voluntary sale of assets which required the approval of the beneficial holders, and not a sale through a liquidation trust, the dissolution of the corporation and the distribution of the proceeds among security holders. If liquidation had been the true intent and purpose of the plan and the agreement entered into pursuant thereto under the direction of the court, it is difficult to understand why such elaborate provisions should have been made to secure continuity of the enterprise. If liquidation had been contemplated in the manner sought, the court could have rejected the plan, dismissed the petition and directed proceeding with bankruptcy under the provisions of Title 11, United States Code Annotated, sections 636-638 (Chandler Act of June 22, 1938). The fact that a comprehensive plan for continuing the enterprise was confirmed and consummated is a fair indication that liquidation was not intended. Moreover, there is nothing of record to indicate that liquidation is necessary, advisable or desired by the certificate holders. The property is self-sustaining and earning dividends.

These conclusions are likewise applicable to the contention made by plaintiffs that they were given express power to make the proposed conveyance of the corporate property without the approval of the certificate holders, and thereby enabled to change the corporate structure to a liquidation trust. In the performance of their duties as trustees they are not required to vote upon the proposition for the transfer, and there is' nothing in the agreement that suggests such a course of conduct. Their powers should be limited to voting the stock for corporate purposes, for the continuance of the enterprise, and not for its liquidation. They have no financial interest in the property or in the shares of stock held by them as trustees. The beneficial owners are not complaining about the existing plan or seeking to have their property conveyed to a liquidation trust -for the purpose of sale and distribution of the proceeds, but are denying the proposed intent and purpose of the plan, and are standing upon the provisions of the agreement and plan as expressing the intent for reorganization to which they assented and which the United States District Court approved. Plaintiffs’ claim, and the finding in the decree that the proposed conveyance would be to the best interest of the voting trust certificate holders, are immaterial. Neither the property nor the trust is being administered by the court in which the decree was entered, and therefore it had no power or right to determine what is best for the security holders. Tudor v. Firebaugh, 303 Ill. App. 452.

In Merchants’ Loan & Trust Co. v. Chicago Rys. Co., 158 Fed. 923, a proceeding was instituted to compel the security holders of the street railway lines to accept the terms and conditions of an ordinance of the city of Chicago in connection with the reorganization. The circuit court of appeals, indicating that it had little hesitancy in stating that the ordinance tendered by the city was reasonable and fair and that as a business proposition it would be wise for the parties to accept it, held that “the court does not make contracts for parties. . . . although it may believe that a party insisting upon those rights is probably, or even certainly, bound to suffer loss, yet while he insists it must protect him in his insistence. There is no wide discretion vested in the chancellor which perrnits him to disturb contract rights — rights of property.”

The plan adopted in the instant case was submitted by plaintiffs as a bondholders’ committee. An examination of the plan and the circumstances surrounding the reorganization discloses that the debtor owned and operated a large apartment hotel which was completely furnished and serviced by it. The value of the property must have been in excess of the mortgage indebtednass, and it was undoubtedly contemplated that the indebtedness could be paid out of the net earnings of the business conducted by the debtor. There is nothing in the evidence to now indicate that this cannot be accomplished. The consummation of the plan, of which the stock voting agreement was a part, gave the certificate holders substituted securities and an agreement defining their rights. To brush aside the plan and subvert the intent and purpose of the agreement so as to allow the trustees to substitute a liquidating trust for- the corporate form, would, as defendants’ counsel says, change the existing agreement so that plaintiffs could take over the property, manage it for an indefinite period and exclude defendants, who are the real owners, from exercising any control over the property.

In Re Firstbrook Boxes, Ltd., [1936] 1 D. L. R. 92, the voting trustee made application to the court for direction relative to its power, under a voting trust agreement, to vote the shares of stock at a shareholders’ meeting in favor of the confirmation, ratification and adoption of a resolution directing the sale of the company’s business, but the court held that “Unless expressly declared by the instrument creating a voting trust, ... no authority can be said to be conferred to terminate the undertaking in respect of which the right to vote. is given. . . . that it is not within the contemplation of shareholders or intended shareholders when directing or consenting to the issue of shares to a trustee, to invest that trustee with power to terminate the enterprise by a sale of the undertaking.”

In In re Wedgewood Hotel Co., 125 F. (2d) 327, the petitioner sought to do the converse of what plaintiffs propose to do in the instant case. After a plan of reorganization providing for the liquidation of the debtor property under a liquidation trust agreement had been adopted, a security holder petitioned the court in the reorganization proceeding to modify the plan by construing a part of the agreement as providing for the organization bf a new. corporation to take over the assets and property of the debtor and to issue stock in the new corporation in lieu of the bonds of the debtor. The trustee challenged the jurisdiction of the court over the subject matter, and appealed from its judgment. The circuit court of appeals, assuming that the district court had an implied or inherent jurisdiction to enforce its final decree and to aid in carrying out the plan, said that “the relief sought was foreign to, and in contravention of, the plan of reorganization as assented to by the creditors and approved by the court. In fact, the petition plainly discloses that another and different plan of reorganization was proposed. If consummated, the result would be a new plan of reorganization, not assented to by the creditors, superimposed upon the plan, assented to and confirmed.”

Aside from the foregoing considerations, the decree indicates that no liquidating trust agreement is embodied in the decree, nor does it specify the terms and conditions of any such proposed agreement other than to say that it shall preserve the substantial beneficial rights of the certificate holders. The decree merely authorized plaintiffs to make and enter into a liquidation trust agreement wherein they will presumably be the trustees, which in their judgment preserves such rights. That would leave the shareholders with substantially no protection, except possibly through means of further litigation, to determine whether the terms of the liquidating trust agreement entered into by plaintiffs with themselves, preserved the substantial beneficial rights of the certificate holders.

In view of our conclusions as to the construction . placed upon the agreement by the court, we deem it unnecessary to discuss the jurisdictional question raised by defendants.

For the reasons indicated, the decree of the superior court should be reversed gnd the cause remanded, with directions to dismiss the complaint for want of equity, and it is so ordered.

Decree reversed and cause remanded with directions.

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


source: Caselaw Access Project

license: Public Domain

text:
    Hannah Jennings and Fred W. Hall, Appellants, v. Illinois Automobile Club and United States Mutual Insurance Company, Appellees.
    Gen. No. 42,504.
    Opinion filed June 16, 1943.
    Robert J. Millman and George L. Siegel, both of Chicago, for appellants.
    Wyatt Jacobs, Walter A. Christopher and Philip G. Brennan, all of Chicago, for appellees.
   Mr. Justice Friend

delivered the opinion of the court.

On November 24, 1938 Fred W. Hall, one of the plaintiffs herein, was involved in an automobile accident in the State of Missouri, which resulted in the death of Raymond Jennings, who was a passenger in Hall’s car. Hannah Jennings, the other plaintiff,, brought suit in the circuit court of Cook county for the wrongful death of her deceased husband, and had judgment against Hall for $10,000.

A month prior to the accident Hall had applied for membership in the Illinois Automobile Club, which furnished its members, in addition to other services enumerated in the application, with a “One Year Public Liability and Property Damage Insurance Policy” for $5,000. Hall’s application was accepted November 16, 1938, and two days later the club so advised him by letter, stating that the insurance policy to which he was entitled with his membership, was being prepared, and inclosing a 30-day binder of the United States Mutual Insurance Company, expiring December 16, 1938, which referred to a “Grold Star Policy” but did not set forth any of the terms thereof. At the bottom of the binder the applicant was advised, in bold-faced type, to “Keep This Binder Until You Receive Your Policy,” and was invited to examine “The policy upon which this Binder is predicated . . . at the Home Office of the United States Mutual Insurance Co., 3401 South Michigan Avenue, Chicago.” Upon the occurrence of the accident Hall wired the automobile club, and received in reply a telegram from the insurance company inquiring as to the nature of the accident. The policy which the insurance company proposed to issue would not have insured Hall against loss for or damage sustained “by any person whatsoever if such death, injury or damage was sustained while riding in or upon the automobile described in this policy,” and accordingly the insurance company disclaimed liability upon the sole ground that the proposed policy did not protect Hall against claims made by passengers in his automobile.

Following the entry of judgment against Hall fo^ $10,000, he assigned his claim against both defendants in this proceeding to Mrs. Jennings and brought suit jointly with her under two separate counts, one against the Illinois Automobile Club for its alleged breach of contract in failing to protect him to the extent of $5,000, and the other against the United States Mutual Insurance Company, predicated on the theory that by a liberal construction of the proposed policy plaintiffs were entitled to recovery because Jennings, although a passenger in Hall’s automobile at the time of the accident, nevertheless died in the hospital and not “while riding in or upon the automobile described in this policy. ’ ’ The cause was tried by the court without a jury, and at the conclusion of plaintiffs’ case judgment was entered for defendants, from which an ap-' peal has been taken.

Plaintiffs’ claim against the automobile club is predicated upon the breach of an agreement to furnish a public liability insurance policy, which contract does not designate any specific insurance company nor mention any restrictions or limitations to be contained in the policy, and they argue that under the circumstances the automobile club was obligated to furnish a policy containing only such conditions and limitations as were usual in automobile public liability policies, and that it cannot avoid its obligations by furnishing a policy with unusual provisions. As heretofore stated, no policy was ever issued, but when Hall’s application for membership in the - automobile club was accepted he was so notified in writing and advised that while the policy was being prepared the club was sending him a binder “good for thirty days.” Notwithstanding plaintiffs’ contention that the club’s letter to Hall indicates an unconditional acceptance of his application, which “is not qualified by nor made subject to the provisions of the proposed policy or the binder,” we think his claim and that of his assignee, Mrs. Jennings, must be considered in the terms of the insurance company’s binder which accompanied the acceptance and thus became a part of the agreement upon which his suit is predicated. The acceptance of his application referred to the binder and accompanied it, and it is an elementary rule that where an acceptance is qualified by a specific statement of the obligation to be assumed, there is either a contract in the terms of the acceptance or no contract at all. The application defines the services available to members, specifies in considerable detail the benefits and obligations of the contracting parties, and the binder invites examination of the form of policy to be issued to the applicant, who had the right to repudiate the acceptance as made if the policy did not conform to his expectations. Under the circumstances the question resolves itself into a determination of the obligation under the insurance binder.

Plaintiffs cite and discuss various decisions purporting to hold that upon an agreement to procure a policy of insurance which is silent as to conditions, it will be presumed that the parties contemplate a form of policy containing such conditions and obligations as are usual in such cases or have been used before between the contracting parties. Eames v. Home Ins. Co., 94 U. S. 621, 24 L. Ed. 298, is one of the decisions cited. In that case plaintiff had carried insurance with the defendant for two years. After the policy had lapsed plaintiff made a new application. The general agent of the company declined the request on account of the rate offered, but after considerable correspondence between the parties plaintiff agreed to pay the rate required by the company. Thereupon the local agent requested that the policy issue, but before it issued a loss was incurred. The company interposed the defense that the preliminary contract to insure “did not state what kind of a policy . . . Eames wished to have.” The court rejected that contention and said: “It is sufficient if one party proposes to be insured, and the other party agrees to insure, and the subject, the period, the amount, and the rate of insuranee is ascertained or understood, and the premium paid if demanded. It will be presumed that they contemplate such form of policy, containing such conditions and limitations as are usual in such cases, or have been used before between the parties. This is the sense and reason of the thing, and any contrary requirement should be .expressly notified to the party to be affected by it.” There was no contention in that case that plaintiff’s loss failed to come within the policy the defendant would have issued, and therefore the court was not called upon to define with exactness what was intended by the statement that the conditions would be such as were “usual in such cases.” Likewise, in Cottingham v. National Mut. Church Ins. Co., 290 Ill. 26, and Newark Machine Co. v. Kenton Ins. Co., 50 Ohio St. 549, 35 N. E. 1060, also relied upon by plaintiffs, the issue was whether there was any contract in effect at all, no issue having been raised with respect to the compliance of any particular provision. In Carlson v. Grimsrud, 223 Wis. 561, 270 N. W. 50, the defendant set up noncompliance with a condition in a casualty policy, an exclusion similar to the one contained in the policy under consideration, but plaintiff there testified to conversations had with the agent at the time the policy was ordered, and the trial court specifically found that the agreement was to issue a policy “without exclusion from the insuring agreement on account of the fact that the injured person was an occupant of the insured automobile.” In the case at bar plaintiffs do not charge fraud or misrepresentation, but stand solely upon the application for membership and the acceptance thereof. It must be assumed that when making his application Hall was satisfied with the prospect of securing the insurance coverage that the automobile club proposed to furnish, and there is nothing to indicate that he interrogated the solicitor concerning the terms of the proposed policy. The only case cited by plaintiffs which would seem to be contrary to the other decisions upon which they rely is Salisbury v. Hekla Fire Ins. Co., 32 Minn. 458, 21 N. W. 552, but that case may be distinguished on the facts. Plaintiffs had entered into an oral contract of insurance with the defendant. There was no binder or letter referring to the proposed issuance of any particular policy, and the loss occurred while the parties were operating under a parol agreement. The court held that defendant was not entitled to take advantage of the exclusions which were to be part of its policy when issued.

Decisions in Illinois are in substantial agreement as to the construction to be placed on binders or memoranda which do not attempt to prescribe or restrict the terms of insurance, but merely undertake to give coverage and refer to the policy to be delivered thereafter. In Trichelle v. Sherman & Ellis, Inc., 259 Ill. App. 346, we considered at length the legal effect of a so-called binder which did not purport to state any of the terms of coverage but expressly referred to a policy to be delivered. The property was destroyed before the policy issued. As in the case at bar, the binder was held to be a preliminary contract for present insurance as of its date, and as in the instant proceeding there was no contention that anything was said or done that created any different understanding than was expressed in the preliminary agreement. After reviewing the leading cases on the subject, we expressed the opinion that it “becomes a mere question of law, in such a case, whether there may be read into such contract the terms and conditions of the contemplated policy to which said contract refers,” and answered the question by concluding “where a binder does not attempt to prescribe or restrict the terms of insurance but merely undertakes to give coverage and refers to the policy to be delivered thereafter the obligations of the parties are, as stated in the Lipman and Sherri cases, supra, ‘according to the terms of the policy in ordinary use by the company.’ ” The frequently quoted decisions of Lipman v. Niagara Fire Ins. Co., 121 N. Y. 454, 24 N. E. 699, and Sherri v. National Surety Co., 243. N. Y. 266, 153 N. E. 70, both enunciated the rule that the true construction of the binding slip only obligates the insurer according to the terms of the policy in ordinary use by the company. The same rule was announced in the early case of Concordia Fire Ins. Co. v. Heffron, 84 Ill. App. 610, where under an oral contract of insurance the court approved the authorities holding that “ ‘a memorandum that a subject “is insured,” or “shall stand insured,” means that it is insured, or shall be so, according to the ordinary form of policy used in the office when the memorandum is made. ’ ” As we pointed out in the Trichelle case, the theory underlying these decisions “recognizes a practical situation and the manifest mutual intent and understanding of the parties with regard thereto, that the applicant desiring protection from the date of his application, before the policy can be executed in the ordinary course of business, is given and accepts a binder as evidence of ‘coverage’ or temporary insurance from that date until a policy to take effect as of said date can be delivered, but, in the absence of any express terms in the binder or other undertakings, on the basis of the terms and conditions of the policy contemplated.” In Lipman v. Niagara Fire Ins., Co., supra, the court said “there can be no doubt that the true construction of the binding-slip only obligated the defendant according to the terms of the policy in ordinary use by the company. There is no other reasonable interpretation of the transaction.. . . . The binding-slip was a mere memorandum to identify the parties to the contract, the subject-matter, and the principal terms. It refers to the policy to be issued. The construction is, we think, the same as though it had expressed that the present insurance was under the terms of the usual policy of the company, to be thereafter delivered.”

Plaintiffs, however, contend for a broader rule than that expressed by the current weight of authority, and they argue that general custom and usage of insurance companies becomes"a material subject of inquiry. In the Lipman case the question of usual practice was submitted to the jury for determination, but the court held that DeGrove v. Metropolitan Insurance Co., 61 N. Y. 594, was decisive “against the view of the learned trial judge,” and the same principle was applied in Sherri v. National Surety Co., supra, and Dalton v. Norwich Union Fire Ins. Soc.. (Tex. Com. App.), 213 S. W. 230. In Barre v. Council Bluffs Ins. Co., 76 Iowa 609, 41 N. W. 373, that principle was applied to an agreement to issue an insurance policy as distinguished from a temporary insuring agreement. Suit was brought on a contract of the defendant to issue an insurance policy, and the defense interposed was that plaintiff had not complied with the conditions of the policy which would have been issued. After a careful analysis of the questions involved, the court concluded that “The law will presume that the minds of the contracting parties'met upon a contract containing the terms and conditions of the policy usually issued by defendant covering like risks. The contract sued on contained no conditions. But it was not a contract of insurance, but a contract to issue a policy which would be a contract of insurance. But what kind of a policy was to be issued? Plainly just such a policy as defendant usually issued in such cases.”

An examination of the record indicates that plaintiffs failed to prove any custom or usage entitling them ’ to coverage different from that furnished by the company. They called as their witness one Emanuel Rothschild, an insurance broker, who testified that all companies issued five or six types of policies. There is evidence that in 1938 there were some 150 insurance companies that issued automobile public liability insurance in Illinois. It would thus appear that there are many different insurance policies now in effect in this State, and it would manifestly be difficult to conclude that any one policy was in general use. Rothschild did not testify that the provision under consideration was not usual, but rather that he had never found it used. Defendants’ counsel call our attention to the fact that he had sold Central Mutual Insurance policies, which contain such provisions, and that in Carlson v. Grimsrud, supra, which is cited by plaintiffs, the policy of that company contained a passenger exclusion clause. In the course of Rothschild’s testimony he ventured the statement that “You get what you pay for. I suppose that when you buy a suit for $20, you buy a $20 suit, and when you buy a $20 policy, you get a $20 policy,” indicating that price is a vital factor in coverage, and the policies usually furnished by the United States Mutual Insurance Company were undoubtedly predicated upon the fee incidental to membership in the Illinois Automobile Club, which secured to Hall numerous services in addition to the liability insurance. As against the foregoing testimony, Kenneth J. Gross, vice president and general manager of the United States Mutual Insurance Company, who had no connection with the Illinois Automobile Club, enumerated some six or seven insurance companies in this State whose policies contained a similar exclusion.

From the foregoing considerations we conclude that under his contract with the automobile club Hall was entitled to" only such coverage as was provided for in the acceptance of his application, according to the terms of the policy in ordinary use by the company, and therefore he was precluded from recovering against the automobile club for injury to a passenger because of the exclusion provision of a policy which the club ordinarily issued.

With respect to plaintiffs’ claim against the insurance company, it is argued that because Jennings died in the hospital following the accident' and not while riding in Hall’s automobile, the policy should be so liberally construed as to avoid the effect of the exclusion clause. This argument is untenable. We think the only fair construction of the policy is that it was designed to and does bar recovery in case of a passenger’s death resulting from injuries sustained while riding in the automobile of insured. Any other construction would destroy and render absurd the manifest purpose of the exclusion clause.

Upon the record presented, we are of opinion that the trial court properly entered judgment for the defendants, and it is therefore affirmed.

Judgment affirmed.

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


text:
    Paul Gangloff, Appellant, v. Dr. George L. Apfelbach, Appellee.
    Gen. No. 42,538.

      Opinion filed June 16, 1943.
    Joseph Barbera, of Chicago, for appellant.
    Rawlins & Wright, of Chicago, for appellee.
   Mr. Justice Friend

delivered the opinion of the court.

Plaintiff brought suit against defendant for malpractice in the performance of an operation on his arm following an injury resulting from a fall. The cause was tried before a jury, but at the close of plaintiff’s evidence the court directed a verdict in favor of defendant and entered the judgment from which plaintiff has taken an appeal.

It appears from the evidence that plaintiff was employed in a store of the National Tea Company at 2741 North Clark street, Chicago. On the morning of March 7, 1936, while putting a sign in the window, he fell backward and fractured his right elbow. He experienced considerable pain and a swelling of his arm. The following morning he called Dr. Apfelbach and was taken to the Alexian Brothers Plospital, where he was examined by defendant and X-ray pictures were" made of his elbow. Heat was applied to reduce the swelling and two days later his arm was placed in a cast, with the elbow flexed so that his hand pointed toward the chin. The next day he returned to his home, and thereafter he regularly visited defendant’s office for about six weeks, until the cast was removed. After the removal of the cast he had the use of his wrist and Angers, but found that his elbow was locked and would not move. Thereafter defendant gave him light treatments two or three times a week until June 1936, when he was returned to the hospital. Defendant told him that in order to relieve the locked elbow he would have to resort to surgery and remove the head of the radius. Plaintiff testified that before the operation his fingers and wrist were, perfectly normal. Following the operation his arm was bandaged and a board splint was applied so that his fingers and thumb were free, curled over the end of the board. He felt a burning sensation in his arm and noticed that his fingers had lost their power of movement. In reply to plaintiff’s inquiry, defendant told him that this was probably caused by nerve involvement. Two days later the splint was removed, a new dressing was applied, the splint was reapplied, and a metal contrivance was attached. He remained in the hospital about two weeks, where defendant visited him every other day.

The function and movement of the fingers and thumb failed to improve. Plaintiff visited and was examined by another physician, Dr. Voris. Thereafter, in November 1936, defendant performed a second operation. Plaintiff testified that defendant had told him “it would fix the involvement of the nerve” and restore the use of his fingers and hand. No noticeable improvement followed the second operation. Light and heat treatments were continued, and plaintiff states that defendant assured him of the ultimate use of his hand.

In January 1938 defendant performed a third operation. Plaintiff testified that defendant told him it would “eradicate the nerve involvement” so that he would have the use of his fingers, but it failed to produce the desired results. The following year defendant sent plaintiff to see Dr. Steindler of Iowa City, who examined him. Upon his return he had a conversation with defendant, who told him it would be inadvisable to operate again, and recommended treatments, which continued until March 1940.

Plaintiff’s suit was instituted in April 1941. The gravamen of the complaint is that the unfortunate re-suit was caused by defendant’s failure to properly diagnose the injury, apply correct and necessary treatment to effect a cure thereof, and that he carelessly and improperly operated upon plaintiff’s elbow “so that the nerves, muscles, ligaments, and the ulnar and radial nerves of the right arm and elbow were cut, severed, and otherwise irreparably injured.”

Upon this state of facts, two questions were presented for the court’s determination in ruling upon the motion for a directed verdict: (1) was there any evidence tending to show, or from which it could fairly be found, that defendant was guilty of any negligence or want of skill in and about the operation and treatment of plaintiff’s arm, and (2) did the statute of limitations begin to run when the alleged act of negligence was committed in 1936, or from the time when the physician ceased to treat the patient in 1940. While expressing grave doubt as to whether there was any evidence adduced by plaintiff which could properly be submitted to the jury, the court predicated its ruling on the ground that the cause had been barred by the two-year statute of limitations (Ill. Rev. Stat. 1941, ch. 83, par. 15 [Jones Ill. Stats. Ann. 107.274]). Although the three operations were performed more than two years before suit was instituted, the loss of movement and function of plaintiff’s fingers and hand is definitely fixed by the evidence as of June 1936, following the first operation. The evidence does not support plaintiff’s charge of negligence, want of skill or omission with respect to the light and heat treatments applied after any of the operations. The gravamen of plaintiff’s contention is that defendant lulled him into believing that the use of his hand and fingers would ultimately be restored by further operations and the treatments applied, and it is urged that under such circumstances the statute of limitations should not begin to run until after the relationship of physician and patient has been terminated, no matter how long it may continue. Counsel for both parties agree that the question of when the statute of limitations begins to run against physicians, surgeons and dentists for malpractice, has not been decided in any reported case in this State, and apparently there are two divergent views on the subject.

As indicated from the annotation in 74 A. L. R., pp. 1317-1325, entitled “When Statute of Limitations commences to run against actions against physicians, surgeons, or dentists for malpractice,” a substantial number of jurisdictions have adopted the rule that the limitation period does not begin to run until the treatment ceases, and decisions in California, Minnesota, New York, Ohio and Wisconsin are cited by plaintiff and urged as supporting this rule. Gillette v. Tucker (1902), 67 Ohio St. 106, 65 N. E. 865, is most frequently cited as representing this view. The defendant there performed an appendectomy on the plaintiff, and neglected or carelessly forgot to remove from the abdominal cavity a sponge which he had placed therein, and closed the incision. The gauze remained within the cavity for about 18 months, unknown to either the patient or the physician, and serious consequences ensued and continued during the entire professional relationship between the parties. The Ohio statute of limitations fixed the time within which suit might be brought in cases of that character at one year, and the proceeding was not instituted until more than a year after the operation had been performed. The. court held that the period of limitation did not commence with the date of the closing of the incision because “The facts in the case . . . show a continuous obligation upon the plaintiff in error [the surgeon], so long as the relation or employment continued, and each day’s failure to remove the sponge was a fresh breach of the contract implied by the law. The removal of the sponge was a part of the operation, and in this respect the surgeon left the operation uncompleted.” The dissenting opinion of three judges was opposed to the principle that the negligence of the physician could be deemed to continue throughout the entire treatment, and subsequently, in 1905, the doctrine of the dissenting opinion was adopted in McArthur v. Bowers (memorandum decision), 72 Ohio St. 656, 76 N. E. 1128. However, in 1919, the McArthur case was disapproved and the doctrine of the Gillette case was reaffirmed in Bowers v. Santee, 99 Ohio St. 361, 124 N. E. 238.

In Harding v. Liberty Hospital Gorp. (1918), 177 Cal. 520, 171 Pac. 98, the complaint charged that defendant, through its chief surgeon, failed and neglected to use proper care, diligence and skill in reducing a fracture, by reason whereof plaintiff’s leg was shortened and its use impaired. The principal issue presented was whether the limitation period of one year prescribed by the California statute, constituted a bar to plaintiff’s action. The court referred to the principle that the limitation period might be considered as commencing with the end of the treatment, but held that since plaintiff’s complaint centered upon a specific negligent act, the period should be computed as commencing with that act.

In Schmitt v. Esser (1929), 178 Minn. 82, 226 N. W. 196, plaintiff suffered a dislocation and fracture of the right ankle. The physician examined the injury, attempted to reduce the dislocation and set the fracture, and represented to the plaintiff that “because of the peculiar injuries they would not heal completely for two years after the treatment was finished.” In holding that the trial court had properly overruled a demurrer based on the statute of limitations, the reviewing court said that “We think the treatment and employment should be considered as a whole, and if there occurred therein malpractice the statute of limitations begins to run when the treatment ceases.” It is to be observed, however, that the court apparently limited the application of the principle enunciated by the following statement: “It is true that if there be but a single act of malpractice subsequent time and effort merely to remedy or cure that act could not toll the running of the statute.”

In Bush v. Cress (1929), 178 Minn. 482, 227 N. W. 432, it was held that where defendant, employed to attend plaintiff in childbirth, continued to treat her for several weeks after the delivery of the child, the statute would not commence to run until the treatment ceased. The decision is predicated upon the theory that the employmént contemplated a continuous service.

In Sly v. Van Lengen (1923), 120 Misc. 420, 198 N. Y. S. 608, a surgeon performing an operation, failed to remove a sponge from plaintiff’s pelvic cavity, where it remained for more than two and one-half years, and during that time he continued to treat the patient. The New York statute prescribed a two-year limitation period, and suit was not brought until more than two years after the operation was performed. Accepting the allegations of the complaint as true, the court held that plaintiff’s cause of action accrued as much by reason of the continuous breach of duty on the part of defendant in treating her and in failing to remove the sponge, as it did because of the alleged negligent act on the day of the operation, but here again the court observed: “If it should appear upon the trial that the injury from which plaintiff is suffering was inflicted at the time of the operation, and was not occasioned in any manner by the subsequent treatment of the plaintiff, nor by any neglect on his part after the operation, a different situation would arise. . . . This motion [by defendant to dismiss complaint] must be determined solely upon the allegations of the complaint.”

In Conklin v. Draper (1930), 229 App. Div. 227, 241 N. Y. S. 529, affirmed in memorandum decision (1930) in 254 N. Y. 620, 173 N. E. 892, it was held that where the action was based upon the surgeon’s negligence in leaving a forceps in an abdominal cavity after performing an operation, the statute would run from the time of the operation, notwithstanding the fact that plaintiff did not discover the forceps for two years.

In Lotten v. O’Brien (1911), 146 Wis. 258, 131 N. W. 361, the court held that the “statute of limitations began to run when the cause of action accrued, and this accrued when the negligent acts were committed without reference to the time of discharge. The real negligent act which caused the injury to plaintiff was the improper setting of the bones in his arm. The negligent omission to discover this occurred at such dates and times as the defendant undertook to examine, treat, and care for the disabled arm.” The decision is based on the theory that the statute of limitations had run since there was no treatment within the period, notwithstanding the fact that the defendant had not been discharged.

It will be observed that in the foregoing decisions upon which plaintiff relies, representing the doctrine enunciated in the several States, adopting the rule that the limitation period does not begin to run until the treatment ceases, the courts have in several instances pointed out that if there be but a single act of malpractice, subsequent time and effort merely to remedy or cure that act would not toll the running of the statute; and the decisions in those States are predicated on the theory that the treatment and employment should be considered as a whole, and if there occurred therein malpractice, the statute of limitations begins to run when the treatment ceases. In Gillette v. Tucker, the holding of the court was predicated on a continuous obligation of the physician so long as the relation or employment continued, and under the particular circumstances of that case, each day’s failure to remove the sponge was a fresh breach of the contract implied by the law. The dissenting judges refused to concur in this theory.

As against the theory enunciated in the foregoing decisions, the general principle adopted in the vast majority of jurisdictions is that the statute of limitations attaches when and from the time that the law affords a remedy for the injury sustained. There enters into the discussion of many cases the question of concealment of facts by the person alleged to be liable, but such actions are framed upon charges of fraud which do not enter into consideration of the case at bar.

In 34 Am. Jur., Limitation of Actions, sec. 160, the author, in discussing the general principles underlying a right of action against a wrongdoer, says that “where an injury, although slight, is sustained in consequence of the wrongful act of another, and the law affords a remedy therefor, the statute of limitations attaches at once. It is not material that all the damages resulting from the act shall have been sustained at that time, and the running of the statute is not postponed by the fact that the actual or substantial damages do not occur until a later date. The act itself is regarded as the ground of the action, and is not legally severable from its consequences. It is from then that the statute begins to run, and not from the time of the damage or discovery of the injury. It is immaterial whether the conduct out of which the cause of action arises is the breach of an implied contract or the affirmative disregard of some positive duty; in either case, the liability arises immediately on the breach or disregard of duty, and an action to recover the damages, which are the measure of such liability, ■may be immediately maintained.” Decisions in numerous States are cited in support of these statements.

In Weinstein v. Blanchard (1932), 109 N. J. L. 332, 162 Atl. 601, the physician was charged with negligently leaving a drainage tube in the wound, which was not discovered until a long time later, when suit was brought. The court held that the statute began to run at the time the tube was inserted, and said: “In support of the rule declared in Gogolin v. Williams [91 N. J. L. 266, 102 Atl. 667] there is a long line of cases dealing quite squarely with this subject. Many of them are found cited in 17 R. C. L. 765, secs. 129, 130; also in Am. & Eng. Ann. Cas. 696; also in 126 American State Beports, 950, 951, where in subsection ‘b’ it is stated: ‘The statute of limitations ordinarily runs against a physician or surgeon for damages due to malpractice from the time of the act of negligence or unskillful treatment, and not from the time of the consequential injury.’ ”

In Albert v. Sherman (1934), 167 Tenn. 133, 67 S. W. (2d) 140, where suit was brought to recover damages against a dentist because of alleged malpractice, the court said: “Undoubtedly the weight of authority is to the effect that the statute of limitations begins to run against an action of this kind from the date of the wrongful act rather than from the date of the damage caused. Cappucci v. Barone, 266 Mass. 578, 165 N. E. 653; Ogg v. Robb, 181 Iowa 155, 162 N. W. 217, L. R. A. 1918C, 981; Hahn v. Claybrook, 130 Md. 179, 100 A. 83, L. R. A. 1917C, 1169; Wetzel v. Pius, 78 Cal. App. 104, 248 P. 288, and see other cases collected in note, 74 A. L. R. 1318. . . . While there is some conflict in the decisions, the majority rule is better sustained by authority and reason. If, as again emphasized in Patten v. Standard Oil Co., 165 Tenn. 438, 55 S. W. (2d) 759, statutes of limitation are to be regarded as statutes of repose, the majority rule should obtain. Recognition of a contrary rule tvould permit a plaintiff, afflicted with some malady, to trace that malady to an original cause alleged to have occurred years and years ago. No practicing physician or dentist would ever be safe. The origin of disease is involved in uncer tainty at best. While hardships may arise in particular cases by reason of this ruling, a contrary ruling would be inimical to the repose of society and promote litigation of a character too uncertain and too speculative to be encouraged.” (Italics ours.)

In Hahn v. Claybrook (1917), 130 Md. 179, 100 Atl. 83, plaintiff charged a physician with negligence in administering treatments which resulted in a discoloration of the skin. The treatments continued over a long period of time, the discoloration first appearing about four years after the initial visit. The suit was not started until about 11 years after plaintiff’s first visit, after the three-year period of the statute of limitations had run. The court held that the statute of limitations began to run at the time when the alleged injury was apparent, and in the course of its opinion the court, referring to the frequently cited case of Coady v. Reins (1872), 1 Mont. 424, said that there it was held “in an action for negligence of a physician, that the gist of the action in this instance is the negligence and unskilfulness or breach of duty as laid in the complaint,' and not the injury or damage consequent thereon. But the statute in cases of this nature begins to run, regardless of the form of action, whether in case or assumpsit, from the time of the negligence or breach of duty. In Wilcox v. Plummer, 4 Peters 181, it is distinctly held, that the statute begins to run from the time a right of action accrues and not from the time that the damage is developed' or becomes definite."

In Carrell v. Denton (1942), 138 Tex. 145, 157 S. W. (2d) 878, the doctor was charged with negligently leaving a sponge in the body of plaintiff in November 1931, which was not discovered until 1935, after the statute of limitations had run. About a year later plaintiff instituted suit and contended that the statute did not become operative until the sponge had been discovered, but the court held that the action was barred, and in the course of its opinion said: “The wrongful act from which the damages sued for resulted, consists of the negligent act of Dr. Carrell in failing to remove the gauze sponge from inside the body of the plaintiff before the incision in his body was closed. The plaintiff’s cause of action for the resulting damages accrued at that time. Houston Water Works Co. v. Kennedy, 70 Tex. 233, 8 S. W. 36. The statute of limitation began to run at that time and had run its prescribed course, without interruption, before this suit was brought. The plaintiff’s counsel insists that the statute did not begin to run until November 1935, when the plaintiff discovered that the gauze sponge had been left inside his body by Dr. Carrell. The proposition which lies at the bottom of this contention is to the effect that the relation between a surgeon and his patient involves trust and confidence, therefore fraudulent concealment is imputed to Dr. Carrell because of his failure to inform the plaintiff that the gauze sponge had been left inside the plaintiff’s body. . . . In conducting a surgical operation on his patient, and in respect to any treatment he may administer, a surgeon is under the duty to exercise due care. . . . but the failure does not, of itself, constitute fraud or expose the surgeon to the imputation of fraudulent concealment. Among other essential ingredients, a fraudulent concealment in cases of this sort includes, first, actual knowledge of the fact that a wrong has occurred, and, second a fixed purpose to conceal the wrong from the patient. Neither of these ingredients appears from the allegations of the plaintiff’s petition.”

In Gum v. Allen (1931), 119 Cal. App. 293, 6 P. (2d) 311, where suit was brought for alleged malpractice, the court held that the statute of limitations began to run from the date of the original injury, and after referring to the doctrine of the Ohio cases heretofore cited, quoted from Wetzel v. Pius (1926), 78 Cal. App. 104, 248 Pac. 288, as follows: “ ‘The original injury remains the sole cause of action, and subsequent acts which merely aggravate the damage already done, or later developments which frequently add new elements of damage, merely attach themselves to the original cause of action, and do not of themselves become independent causes of action, nor do they revive the cause of action for the original injury, if the same has become barred,’ ” and concluded that “Since the action was not commenced within one year from the date of the operation, it became barred by section 340, subdivision 3 of the Code of Civil Procedure, requiring that an action for the injury to one by the wrongful act or neglect of another be instituted within that period of time.” Gardner v. Beck (1922), 195 Iowa 62, 189 N. W. 962, and Carter v. Harlan Hospital Ass’n (1936), 265 Ky. 452, 97 S. W. (2d) 9, are to the same effect.

As heretofore pointed out, plaintiff does not contend that either of the later operations or the treatments applied, caused the injury for which the suit is brought. He testified that the numbness or paralysis of his fingers and hand become apparent immediately after the first operation in 1936, and he was apprised by the physician that it was due to a nerve involvement. Subsequent surgery and treatments were calculated to remedy this unfortunate condition, but were resorted to without avail. The complaint is based principally upon allegations that injury or severance of the ulnar and radial nerves in performing the- opera-' tion caused the irreparable injury, and the evidence clearly indicates that the loss of movement and function of his fingers and hand immediately followed the first operation. Under the weight of authority his cause of action accrued in 1936, and since suit was not instituted until 1941, we think the court properly held that the statute had barred recovery.

In view of these conclusions it is unnecessary to consider the question whether there was any evidence in the record tending to show that the injuries or disabilities complained of resulted from the alleged negligence or unskillfulness of the defendant.

For the reasons indicated we are of opinion that the court properly instructed the jury to return a verdict for defendant at the close of plaintiff’s case, and the judgment of the circuit court is therefore affirmed.

Judgment affirmed.

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


text:
    Ray DeBuck, Appellee, v. Lester C. Gadde, Appellant.
    Gen. No. 42,585.

      Opinion filed June 16, 1943.
    Hinshaw & Culbertson, of Chicago, for appellant; John M. Moelmann, of Chicago, of counsel.
    Edward M. Platt, of Chicago, for appellee.
   Mr. Justice Friend

delivered the opinion of the court.

Plaintiff brought suit to recover damages for the death of a certain riding horse which was struck by an automobile operated by defendant on North avenue, approximately two blocks west of the Des Plaines river. At the close of plaintiff’s case, and again at the close of all the evidence, defendant’s motions for a directed verdict were overruled. The jury returned a verdict finding defendant guilty and assessing plaintiff’s damages at $600. Thereafter defendant moved for judgment notwithstanding the verdict or, in the alternative, for a new trial. Both motions were overruled, and judgment was entered for plaintiff, in the sum of $600, from which defendant appeals.

The collision occurred July 24, 1941. There is a forest preserve on the north side of North avenue. On the south side of the highway nearest the river there is a small landscape gardener’s office, then plaintiff’s riding stables known as the River Forest Riding Academy, then the Old Homestead Tavern, then the Archery Range, and then the Rosebud Stables owned by one Frank Fagiano. At the site of the accident North avenue consists of two roads or lanes, separated by a grass plot. Opposite the Old Homestead Tavern is a bridle path on the north side of North avenue, which runs about 30 feet north of the road, turns to the west, and runs past the Rosebud Stables, where it again turns to the north into the forest preserve. This cross path is used by customers of the Archery Range and the Old Homestead Tavern, as well as by equestrians, is covered with gravel, and is about 50 to 75 feet wide. There is a sign along North avenue reading “Bridle Path,” about 200 feet from the cross path, the letters of which are plainly visible.

About 7 o’clock in the evening on the day in question, Glenn Devini, a veteran equestrian who had been riding at the River Forest Riding Academy for about three years, rented a black horse named Ace from plaintiff’s riding academy, and with another rider entered the forest preserve. Within an hour defendant, who resided in Belvidere, Illinois, was driving in a westerly direction on North avenue between 50 and 60 miles an hour in the center of the double lane highway. Plaintiff’s horse, riderless and with no person near him, walked upon and across the gravel path, was struck by defendant’s automobile, and carried some 25 or 30 feet from the site of the collision. The car traveled about a block before it came to a stop. Defendant’s automobile did not slow down before the impact, and the evidence discloses that he saw the “bridle-path” sign and knew the path was there. A traffic sign along North avenue near the place of the accident reads: “Speed Limit, 40 Miles Per Hour.”

The horse was thrown to the pavement by the impact and had an open cut from seven to nine inches long. It was bleeding profusely, and its shoulder seemed to be “pushed in” or dislocated. Its rear legs were stiff, and in spite of every effort to bring it to its feet, it was unable to stand. Dr. Miller, a veterinarian, arrived shortly and examined the horse. A conversation between plaintiff and the veterinarian ensued, following which plaintiff destroyed the horse with a gun. Dr. Miller died approximately two months before the trial. Plaintiff testified that he had spent eight to ten hours a week, over a period of one year, training the horse to jump; that it had won a first ribbon and cup in a horse show in jumping events; and that in his opinion it had a value of $750.

As ground for reversal it is first urged that plaintiff failed to prove that at the time of the occurrence and immediately prior thereto he was in the exercise of due care or caution.for the safety of his horse, and the provision of section 1, chapter. 8 of the Ill. Rev. Stat. 1941 [Jones Ill. Stats. Ann. 5.001], which reads as follows, is invoked in support of the contention: “Hereafter, it shall be unlawful for any animal of the species of horse, ass, mule, cattle, sheep, goat, swine or geese, to run at large in the State of Illinois.” Defendant’s counsel take the position that because plaintiff’s horse was riderless and unattended, it was running at large, in violation of the statute, thus furnishing prima facie evidence of plaintiff’s negligence. The immediate question presented in this connection is whether Ace was running at large within the purview of the statute when it was injured. What constitutes running at large, within the meaning of statutes of this kind, is discussed in 3 C. J. S., Animals, sec. 131, p. 1231, wherein the author points out that the meaning of the words “running at large” differs in various statutes, and should always be determined largely from the objects and purposes sought to be accomplished by the particular statute wherein the words are used. He classifies the statutes in two categories, and states that a statute of the first class implies knowledge, consent or willingness on the part of the owner that the animal be at large, or such negligent conduct as is equivalent thereto, but does not embrace cases where, through some untoward circumstance, the owner is unable to watch and care for the animal in a particular instance, or where, notwithstanding the owner has taken precautions to restrain them and is without negligence, the animals escape from him and he makes immediate and suitable efforts to recover them. In our own State it was held, in the early case of Town of Collinsville v. Scanland, 58 Ill. 221, that an animal is not running at large where, as for instance, the owner, being called to the bedside of a dying brother, failed to prevent animals which he had watched and cared for daily, from straying. Myers v. Lape, 101 Ill. App. 182, and Kinder v. Gillespie, 63 Ill. 88, are illustrative of the interpretation of the statute invoked in this State, which is primarily aimed at situations where animals are turned out to graze. In Fugett v. Murray, 311 Ill. App. 323, one of several animals turned out in a field to graze, was found upon a highway, and this was held to constitute “running at large.” On the other hand, in Caspers v. Anglo-American Provision Co., 159 Ill. App. 573, where a horse, after being fed and an attempt was being made to bridle him, ran away and injured plaintiff’s intestate upon a highway, the court held that this did not constitute “running at large.”

Similar constructions have been placed on the statutes in other States. In Russell v. Cone, 46 Vt. 600, suit was brought to recover a penalty under such a statute. The evidence disclosed that the owner of the horse permitted it to return over highways unattended, and that the horse always found his way back. The court held that this did not constitute “running at large.” In Lackey v. Peterson, 161 Minn. 315, 201 N. W. 428, a horse went through the open gate of the inclosure, started to cross-the road to go to the barnyard and collided with plaintiff’s truck. It was there likewise held that these facts did not constitute “running at large.” In Gardner v. Black, 217 N. C. 573, 9 S. E. (2d) 10, a mule coming out of a field ran upon a highway and into plaintiff’s automobile. The court held that the mule was not running at large in violation of the statute.

In the case at bar the question of contributory negligence became one for the consideration of the jury under proper instructions. Plaintiff rented his horse to an experienced rider and did nothing whatsoever to contribute to or make possible the accident. Several decisions applicable to actions for injuries to stray animals upon highways sustain this rule. In Texeira v. Sundquist, 288 Mass. 93, 192 N. E. 611, defendant struck an unattended horse on a public highway. In the course of its opinion the court said that “A stray horse when upon a public highway without negligence on the part of its owner is not an outlaw nor, as against a traveler exercising a traveler’s rights to use the highway, is such an animal a trespasser,” and pointed out that “The defendant had the burden of proving that the horse was on the highway because of negligence of the plaintiff.” There is nothing in the case at bar to indicate that plaintiff turned his horse loose upon the highway or that he knew the animal was there unattended. In Turner v. Elrod, 151 S. C. 131, 148 S. E. 701, plaintiff’s mule was killed by a motorist when it strayed from home and was attempting to cross a highway. The trial court directed a verdict for the defendant. This was held to be error, the court pointing out that the rule governing the liability of the driver of an automobile for negligence in cases of that kind should be determined by the application of the rule of due care under the circumstances and became a question of fact for the jury. In Pullam v. Moore, 204 Mo. App. 697, 218 S. W. 938, plaintiff’s colt, ranging on a highway, was struck by defendant’s automobile. In affirming judgment for plaintiff, the court held that the case presented a question for the jury.

Even in cases where the evidence more strongly indicates that an animal was running at large, in violation of the statute, the courts have nevertheless held that the question of contributory negligence is still a matter to be determined by the jury, under proper instructions. In the case at bar the court gave five instructions on the question which were offered by defendant. In Cairo & St. Louis R. Co. v. Woosley, 85 Ill. 370, plaintiff sued the railroad company for negligently killing a cow and calf, and the railroad interposed the defense that the animals were running at large in violation of the statute. The court held that “the question whether the owner has been guilty of contributory negligence in permitting them to run at large, is one of fact, to be determined by the jury from the circumstances of the case, and that it is not sufficient to charge a plaintiff with contributory negligence, in a suit against a railroad company for injury to stock, to simply show that the owner permitted the stock to run at large in violation of law; . . . The burden of showing contributory negligence in such cases, where it does not appear otherwise, is upon the railroad company.”

In Myler v. Bentley, 226 Mich. 384, 197 N. W. 521, a motorist who collided with a stray horse on a highway contended that the animal was running at large in violation of the statute, but the court held that whether or not the owner of the horse was guilty of negligence was a question of fact that was required to be submitted to the jury.

Defendant also argues that there is no proof as to his negligence, but in view of the evidence that he was driving over 50 miles an hour, knew the bridle path, and saw the horse before the accident, this question certainly became one for the determination of the jury.

Defendant complains because the trial court permitted plaintiff to introduce proof, over his objection, that the horse was shot, and argues that in an action for negligence, damages can be recovered only for the proximate consequence of the negligence shown, and his counsel say that since there is no evidence tending to show that it was necessary to destroy the animal after the collision, the measure of damages is not the fair cash market value of the horse at the time of its death, but the difference between its fair cash market value at the time it was injured and its fair cash market value after the injury. From the facts heretofore set forth, it appears that the violent impact of an automobile traveling over 50 miles an hour, carried the horse some 25 or 30 feet, cut its chest severely, produced bleeding, dislocated its shoulder, and caused its hind legs to become so stiff that it was unable to stand. From these circumstances the jury was warranted in inferring that the horse was rendered useless, and for humane considerations had to be destroyed. It was a total loss to plaintiff, and therefore the measure of damages was the value of the horse when it was struck. All the facts were submitted to the jury for consideration, and we think no error was committed in that behalf.

Criticism is made of instruction No. 1, which reads: “The court instructs the jury that a person who rents or leases a horse from the Owner of the horse and retains possession thereof is known as a bailee. You are further instructed that even if you believe that the rider of the horse was a bailee of the horse in question and was guilty of negligence, while he had control and custody of the horse after he rented it from the owner, if he rented it from the owner and at the time of the accident in question, which contributed to the collision in question, still if you further believe from the evidence that the plaintiff, the- owner of the horse, was not, by his own conduct, in any way the cause of such negligence, if any, upon the part of the bailee of the horse, then such negligence, if any, oft the part of the said bailee, cannot be charged against or imputed to the owner of the horse in this case.” Counsel say that the instruction is not based upon the evidence, and that it assumes facts which were not in evidence or which were disputed. Counsel further say that there is no evidence in the record to support the statement that the horse was rented to a person who retained possession thereof until the accident and is designated in the instruction as a bailee. Margaret Stenner, a disinterested witness, testified that the rider rented the horse and went out on the path with it, with another rider, and there is evidence that a charge of one dollar per hour was made for the rental of the horse. In view of this testimony there can be no question that a bailment was created, and the person to whom the horse was rented remained in possession thereof until the accident. 31 C. J. S., Evidence, sec. 124, b. (2), p. 741. A like instruction was approved in Chicago City Ry. Co. v. Nonn, 133 Ill. App. 365. We think the instruction is founded on evidence produced upon the hearing, and correctly states that the negligence of the bailee cannot be imputed to the bailor, which was one of the issues involved. •

Criticism is also made of instruction-Ho. 4, which charged the jury that “if you find the issues in favor of the plaintiff, then the measure of his damages will be the fair, cash, reasonable market value of the horse at the time and place it was killed or injured.” Counsel again argue that the measure of damages is the difference between the fair cash market value of the personal property before and after the damage occurs, but as already indicated, the horse was so badly injured that it had to be shot and therefore had no market value after it was dead.

The remaining contention is that the verdict of the jury is excessive. Plaintiff testified to the value of the horse and was an expert on that subject. He had owned and dealt in horses for seven years, attended auction sales where as many as 200 or 300 horses were sold at one time, ranging in price from $125 to $2,500. During those seven years he had personally bought 150 horses and had purchased and sold horses to private individuals. This horse had won prizes as a jumper and was rented out only to persons personally known to plaintiff, who gave it as his opinion that the horse was worth $750. Upon this evidence the jury was warranted in returning a verdict for $600. We think that amount was not excessive.

The verdict was founded upon the evidence adduced, the case was fairly tried, and the judgment should therefore be affirmed. It is so ordered.

Judgment affirmed.

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


text:
    Hortense G. Solomon, Now Known as Hortense G. Stone, Appellant, v. Harold N. Solomon, Appellee.
    Gen. No. 42,667.
    Opinion filed June 16, 1943.
    Rehearing denied June 28, 1943.

      Welch & Hoffman, of Chicago, for appellant; Maurice L. Davis, of Chicago, of counsel.
    Rothbart & Rosenfield, of Chicago, for appellee; Edward Rothbart, of Chicago, of counsel.
   Mr. Justice Friend

delivered the opinion of the court.

By decree of the superior court entered on April 28, 1938, plaintiff was granted a divorce from defendant and awarded the" custody of their son, then approximately two years old. Under the terms of the decree and subsequent orders entered, the father was given the right to visit and take the child out with him on certain days each week and during vacation periods. Plaintiff remarried in 1941. Defendant was notified that he would be inducted into the armed forces of the United States on October 9,1942, and was ordered to report for active duty on October 23. Pending his induction, the court awarded him the custody of the child for four days, and provision was made that in the event any furlough were given him, plaintiff would appear in court on six hours’ notice, without the formality of a petition, to determine the matter of the custody of the child during the period of such furlough. In January 1943 defendant, who had been assigned for training to Camp Adair in the State of Oregon, through his counsel filed a petition alleging, in substance, that it was impossible for him to obtain a furlough, that the distance between Oregon and Chicago was so great as to make travel impossible, that prior to his induction into the army it was customary for his child to spend week-ends with him in the home of his parents, that his only method of maintaining contact with his child was through his parents, who had demonstrated a great affection and love for the child, and he asked that reasonable rights of visitation be granted to his parents during his absence in the military service. Plaintiff denied the material allegations of the petition, averred that defendant had theretofore sought the same relief, which was denied by the court, alleged that the parents and brother of the defendant were emotionally and temperamentally unstable, that the parents of defendant were without legal right to the custody of the child, and that the proper interests of the minor would not be best served by granting defendant’s petition.

The chancellor, who was familiar with the cause, pursuant to an agreement between the parties in court, interviewed the minor child in chambers, out of the presence of any of the parties or their counsel, and satisfied himself, as he stated, that the minor had a friendly feeling for his grandmother, “likes to go there,” and that he would not.be in any wise injured by visiting his grandparents. The court also stated that plaintiff had called on him in chambers for a consultation with respect to the proposed right of visitation by the grandparents, and as a result of his interview with plaintiff and his interrogation of the minor, he considered it unnecessary to hear further evidence, and there appearing to be no valid reason why the boy should not visit his grandparents ’ home, the court allowed the defendant’s petition and entered an" order ’which provided that the minor should be allowed to visit with his grandparents on Saturday of each week from 10:00 to 12:00 o ’clock in the forenoon. Plaintiff appeals from that order.

Plaintiff’s counsel urge two principal grounds for reversal: (1) as against the paternal grandparents of a minor child, the mother is entitled to the exclusive care and custody of the child where her fitness is unquestioned; and (2) plaintiff was entitled to be heard and to offer evidence in opposition to defendant’s application for the award of partial custody of the child to the paternal grandparents. With respect to the legal aspect of the case, Illinois courts have, on several occasions, held that as against grandparents or in-laws, a parent has the right of exclusive care and custody of his child, unless he has forfeited that right by some act of his own or unless he is deemed unfit to assume that responsibility. People v. Sheehan, 373 Ill. 79; Kulan v. Anderson, 300 Ill. App. 267; and Schneeman v. Schneeman, 317 Ill. App. 286. However, all these cases can be easily distinguished on the facts from the circumstances in this proceeding. In People v. Sheehan, the mother had died, and a dispute existed between the grandparents and father as to the right of custody of the child. In Kulan v. Anderson, the mother had died in childbirth, and a controversy arose between an aunt and the father as to the custody of the child. In Schneeman v. Schneeman, the mother lived in Germany and had indicated her intention of remaining there, and the maternal grandmother, who was temporarily visiting in the United States, sought the custody of the child against the father, who was an American citizen and a fit person. Both the mother and maternal grandmother were alien enemies, and under the circumstances we held that the father was entitled to the custody of the child.

In the case at bar a substantial portion of the original decree deals with the custody of the child in considerable detail, and all the orders that were entered after the original decree were merely modifications of the right of the father to visit with and have temporary custody of his son during the year and on vacations. If he had not been called into the armed service, he would have had the right, under the decree, to take his son week-ends and allow him to visit his grandparents regularly; and unless there is some circumstance not disclosed of record which would make it inimical to the interests of the child to allow him to spend two hours a week with his grandparents, we think such an order as was entered would not be a departure from or in conflict with any of the cases upon which plaintiff relies.

Nor is it of minor importance that men in the service should be relieved of unnecessary worry over existing relationships at home. Defendant is greatly exercised over the refusal of plaintiff to allow his son to visit the paternal grandparents for a short period each week and thus* preserve the principal contact which he has with him. Under the provisions of the Soldiers ’ and Sailors’ Civil Belief Act of 1940, as amended (sec. 201, 50 USCA, Appendix, sec. 521), courts are empowered to defer litigation involving men in the service. The underlying purpose of that act is not only to preserve their rights and property interests during their absence, but to remove every inhibition which would interfere with their full devotion to the important tasks at hand. The policy of the courts is well expressed in the recent case of McGlynn v. McGlynn, 35 N. Y. S. (2d) 6 (decided May 13, 1942), wherein the court suspended operation of an order requiring a husband in military service to pay alimony to his wife, with the following comment: “At all hazards every inhibition must be deferred so that he is physically, mentally and spiritually free to devote himself to the greatest task ever to confront him and his country.”

However, plaintiff averred in her answer that the grandparents and defendant’s brother, who resides with them, are emotionally and temperamentally unstable, and that it would not serve the best interests of the minor to allow him to visit them “because of the disturbances in their home.” It may well be that Judge G-raber touched upon these circumstances in his interview with plaintiff, but the record does not indicate what the subject of the conversation was, and since plaintiff insists that she was -entitled to be heard and to offer evidence in opposition to defendant’s application for the right of visitation of the paternal grandparents, we think she should be accorded that privilege.

Accordingly, the order of February 25, 1943 is reversed, and the canse is remanded, with the sole direction that the court hear such competent evidence as the parties may have to offer touching upon the fitness of the paternal grandparents to receive the child in their home as ordered by the court.

Order reversed and cause remanded with direction.

Sullivan, P. J., and S cantan, J., concur.