author: Mr. Presiding Justice Sullivan

text:
    Charlotte Nolan, Appellee, v. American Telephone and Telegraph Company, Appellant.
    Gen. No. 42,229.

      Heard in the second division of this court for the first district at the April term, 1942.
    Opinion filed June 15, 1945.
    Released for publication June 27, 1945.
    Dent, Weichelt & Hampton, of Chicago, for appellant.
    Joseph R. Roach and Edward M. Keating, both of Chicago, for appellee.
   Mr. Presiding Justice Sullivan

delivered the opinion of the court.

This appeal by defendant, American Telephone and Telegraph Company, seeks to reverse a decree which directed it to issue to plaintiff, Charlotte Nolan, a certificate for 100 shares of its capital stock and to pay her $4,275 in dividends and $633.22 interest on such dividends.

Plaintiff’s complaint alleged substantially that on June 12, 1936 certificate 0102232 for 100 shares of American Telephone and Telegraph Company stock was issued to her in her name and that she had been the legal and equitable owner of such 100 shares of stock since said date; that some time between June 12,1936 and September 2, 1936 “some unknown person obtained possession of the said certificate” without her consent or permission and forged her name to an irrevocable stock power without her authority; that said forgery did not come to her knowledge until on or about July 1, 1937; and that some unknown person or persons presented said certificate of stock along with the forged irrevocable stock power to the American Telephone and Telegraph Company and demanded the issuance of a new certificate in exchange and that defendant accepted plaintiff’s forged signature on the irrevocable stock power as genuine and wrongfully and unlawfully issued and delivered to some person other than plaintiff a new certificate for 100 shares of its stock in lieu of certificate .G102232.

The complaint concluded with a prayer that defendant be ordered to issue and deliver to plaintiff a certificate for 100 shares of its capital stock and to pay her all dividends declared payable to stockholders of record since July 15, 1936 and interest on such dividends.

Defendant filed an amended answer which specifically denied all the material allegations of the complaint, including the averment that “the irrevocable stock power was forged,” and alleged that the signature appearing on said stock power was signed by plaintiff. The amended answer also contained the following allegations:

“Defendant denies that the plaintiff was at any of the times mentioned in plaintiff’s complaint, or that the plaintiff now is the equitable owner of one hundred (100) shares of the capital stock of the American Telephone & Telegraph Company, a corporation, represented by stock certificate numbered G102232. Defendant admits that certificate numbered G-102232 for one hundred (100) shares of the par value of One Hundred Dollars ($100.00) per share was issued by American Telephone & Telegraph Company to Miss Charlotte Nolan, the plaintiff, on June 12, 1936, but alleges the fact to be that the said certificate and the shares of stock represented thereby were at said time and during all the times thereafter, until September 2, 1936, owned by and the property of John J. Nolan, the father of plaintiff, and alleges that plaintiff, during all of said period, held the said stock as the nominee of and for the exclusive benefit of said John J. Nolan.”

In her reply to the amended answer plaintiff denied all of the matters affirmatively alleged therein by way of defense and averred that she “acquired the stock in her own right and for her own benefit as a gift from her father on June 12, 1936.”

Defendant’s theory as stated in its brief is that “plaintiff’s father furnished the consideration for which certificate G102232 was issued in plaintiff’s name on Jime 12, 1936; that he did not give or intend to give the stock to plaintiff, but that on the contrary, he merely caused the certificate to be issued in. her name that she might hold it as his nominee for his exclusive benefit; and that in September 1936 plaintiff’s father caused the stock to be sold and received the proceeds of sale. The defendant also contends that the signature on the irrevocable stock power is the genuine signature of plaintiff.”

Plaintiff’s theory is that her father made a gift to her of 100 shares of American Telephone and Telegraph Company stock on June 12, 1936 by causing certificate G102232 to be issued in her name and that she did not sign the irrevocable stock power pursuant to which defendant cancelled said certificate on September 2, 1936.

The cause was referred to a master in chancery to hear the evidence and to report his conclusions of law and fact to the court.

It appears from the evidence that Charlotte Nolan was a daughter and one of four children of John J. Nolan and Josephine Nolan; that her father and mother were divorced in 1927 and in 1931 her mother married Joseph E. Taglia; that from 1928 to May 1936 John Nolan and Josephine Nolan Taglia were engaged in litigation involving 200 shares of American Telephone and Telegraph Company stock; that Nolan was represented in that litigation by Attorney John F. Higgins and his former wife was represented by Attorney Branko M. Steiner and that as the result of the settlement of that controversy Nolan received a certificate, numbered G-101868, for 100 shares of American Telephone and Telegraph Company stock, issued in the name of Josephine Nolan Taglia and indorsed by her in blank; that this certificate was delivered by Attorney Steiner to John F. Higgins, Nolan’s attorney, on May 26,1936; that Nolan caused this certificate to be cancelled and another certificate, numbered 0102232, to be issued by defendant on June 12, 1936 in the name of plaintiff; that her father caused the 100 shares' of stock represented by certificate 0102232 to be sold and he received the proceeds of the sale; and that certificate 0102232 was cancelled by defendant on September 2, 1936.

The evidence presented on defendant’s behalf before the master also disclosed the following further facts and circumstances. Nolan had been at one time a comparatively wealthy man. When he received the certificate for 100 shares of American Telephone and Telegraph Company stock in the latter part of May 1936 as the result of the settlement of the litigation with his former wife, his financial affairs were in a precarious condition and he was worried about his creditors. At the time Attorney Higgins delivered this certificate to Nolan, the latter told Higgins that he was going to have it “transferred into the name of his daughter, Charlotte,” who had agreed “to let me use her name and when the certificate is made out she will endorse that certificate over to any one and in any 'way and at cmy time I ash her to do it.”

In the first part of June 1936 Nolan showed certificate G-101868 to S. P. Tomaso, vice president of the Prairie State Bank, and stated to him that he wanted it transferred out of the name of Josephine Nolan Taglia as quickly as-’ possible in order to prevent Mrs. Taglia from receiving a dividend due about that time. Nolan also told Tomaso at that time that “he was going to transfer the certificate into the name of Charlotte,” who was living with his sister, Mrs. Agnes McCue, and that “he would not have any trouble with her.” Thereafter, on June 8, 1936, Nolan brought the certificate to Tomaso at the Prairie State Bank and stated to him that he had decided to put it in Charlotte’s name “for the time being” and that he wanted it transferred to her. Nolan delivered the certificate to Tomaso for transfer and in lieu of certificate G-101868 the American Telephone and Telegraph Company on June 12,1936 issued certificate G-102232 in the name of “Miss Charlotte Nolan. ’’ This new certificate was .delivered by the defendant to the bank and by the bank in turn to Nolan. Charlotte never had it in her possession nor even saw it until it was shown to her at one of the hearings before the master. In the latter part of June 1936 Nolan applied to Tomaso for a loan from the Prairie -State Bank upon certificate G-102232. It was understood between Tomaso and Nolan that the latter was making the loan and the question arose as to the manner in which the loan would be made, since the stock certificate Vas in Charlotte’s name. Tomaso told Nolan that the bank would make the loan if the proper instruments were executed and he gave Nolan a form of irrevocable stock power, a form of power to hypothecate and a form of collateral note with instructions that if he decided to make the loan in Charlotte’s name it would be necessary to have her execute the note and the form of stock power and if he decided to sign the note himself, Charlotte would have to execute the stock power and the power to hypothecate. In the early part of July 1936 Nolan brought to the bank stock certificate G102232, the collateral note and the power to hypothecate, the two latter instruments apparently executed by Charlotte Nolan. Nolan did not at that time bring back the stock power executed by Charlotte and when told by Tomaso that he had made a mistake and that it was necessary to have Charlotte execute the stock power, Nolan said that he would have that done and left the bank with all the documents. On July 7, 1936 Nolan returned to the bank with the irrevocable stock power, the authority to hypothecate and the collateral note signed with plaintiff’s name and on that date the bank made a 90-day loan of $2,551.31, delivered that amount to Nolan and received certificate G102232 as collateral.

Shortly before September 2,1936 Nolan told Tomaso that he needed more money and that he was undecided as to whether he would make an additional loan or sell the stock. He then decided to sell the stock and instructed the bank through Tomaso to sell the 100 shares of stock represented by certificate G102232, the bank caused the stock to be sold and the net proceeds of the sale amounting to $17,465.65, less the principal and interest due on the loan, were turned over to Nolan by the bank. Pursuant to the sale, certificate G102232 and the irrevocable stock power were sent to the American Telephone and Telegraph Company and said certificate was cancelled on the records of the defendant and a new certificate was issued to the purchaser of said stock. The loan having been paid to the bank, it returned the collateral note to Nolan. The Prairie State Bank guaranteed plaintiff’s signature on the stock power .and Tomaso signed same as a witness to her signature. Plaintiff had an account in the Prairie State Bank and upon opening same had signed her name on a signature card. Before plaintiff’s signature on the irrevocable stock power was guaranteed by the bank and witnessed by Tomaso, it was compared with her signature on her account signature card and accepted as áuthentic.

Mrs. Agnes Me Cue testified that she was Nolan’s sister and Charlotte’s aunt; that he lived at her home during the period involved herein and until he died June 29, 1937 and that Charlotte lived with her from March 1935 until the latter part of July 1936, during which period she attended college a short distance from her home in River Forest; that in the latter part of May 1936 “Mr. Nolan told me that he had settled the Telephone stock case, that he was going to get 100 shares of it and for the time being he thought he would put it in his daughter Charlotte’s name; that the stock was low, and as soon as the stock went up he intended to sell it”; that subsequently, in the early part of June 1936, in her home and in her presence Nolan “told Charlotte that he was going to put stock in her name temporarily because his creditors were pressing him and he did not want to have it in his name; that as soon as the stock went up he intended to sell it”; that Charlotte made no reply to this statement of her father in his presence but that after, he left she “complained to me that she did not-like the idea of her father putting stock in her name because she was afraid she may get in trouble with the Government on income tax or on inheritance tax. ’ ’

Mrs. McCue testified further that plaintiff told her about July 5, 1936 that she was going to move from her home and live with a girl friend named Bessie Scully; that Nolan came home later that evening and she informed' him concerning Charlotte’s contemplated change of residence; that about two days later she had another conversation with Nolan in her home, at which time he gave her the irrevocable stock power form and some directions in reference thereto; that this took place about “10 or 11 in the morning” before plaintiff had made her appearance downstairs that day; that she took the irrevocable stock power form to plaintiff’s room and told her that her father wanted her to sign the stock back to him; that “as long as plaintiff was leaving, he wanted to have the stock signed back so that when it was up he could sell it”; that plaintiff told her that “she would gladly sign the stock, that she did not want her name connected with anything belonging to her father”; that Charlotte then signed the stock power in her (Mrs. McCue’s) presence; and that after Charlotte signed the stock power she (Mrs. McCue) took it downstairs and handed it to plaintiff’s father.

Herbert J. Walter, a handwriting expert, called as a witness by defendant, testified that in his opinion the signature “Miss- Charlotte Nolan” on the irrevocable stock power was signed by the same person who signed numerous admitted standards of plaintiff’s handwriting.

Charlotte Nolan testified on direct examination that she did not at any time pledge, sell, transfer, encumber or authorize any other person to sell, pledge, transfer or encumber the stock represented by certificate Gl02232; that she did not indorse said certificate or authorize anybody else to do so at any time; and that she never executed any instrument authorizing anybody else to transfer it.

She testified on cross-examination that she did not sign “Miss Charlotte Nolan” on the irrevocable stock power; that she never saw that document before it was shown to her at the hearing before the master; that she did not know who signed it; and that she had never seen stock certificate G102232 before it was shown to her at the same hearing and that it had never been in her possession.

After defendant’s amended answer was filed, she testified further on cross-examination that “how I first even knew that I owned the stock, the mailman came and I got the mail that day and there was an envelope and ... on the top it had ‘American Bell Telephone Company’ ... it was addressed to me . . . and pay father was in the dining room . . . I told him it was addressed to me. In fact, I was rather mystified, and I opened it. It was a dividend check. My father smiled and he said, . . . ‘T wanted to surprise you . . . You did not know that you were the owner of stock?’ And up until that time I didn’t. And he also informed me that he wanted to give it to me and he wanted me to keep it . . . and he told me that he wanted me to have it. That was about all the conversation in regard to it. Previous to that he had mentioned, while that stock was tied up, that if things turned the way he hoped they would he would see that I never had to worry about anything. But I never did question him from that time on . . . I have had conversations with my father but I did not know that he had definitely given it to me . . . until the check came.”

She then testified that she placed her indorsement “Miss Charlotte Nolan” on the back of the dividend check and that her father cashed same and returned the proceeds thereof to her; that the first time that her father ever told her that he had given her the stock was after the arrival of the dividend check, which was dated July 15, 1936; that he told her then that he “kept the certificate for safekeeping for me . . . he said he had a box and would keep it there ’ ’; that no one was present except her and her father when he told her he had given her the stock; that prior to her conversation with her father at the time the dividend check arrived about the middle of July, she had numerous talks with him concerning the stock, commencing in January and February 1936; that on one occasion her father came home from Kankakee at ‘ ‘ 2:00 o ’clock in the morning ... he was very worried. He said he wished this would get straightened out . . . if things turned out the way he wanted them to he would see I never had to worry about anything”; that he spoke to her about the stock several times but that she “could not tell . . . exactly when ... it all related to the same thing, that he wanted me to have it . . . my dad did mention several times . . . - that if things turned out right he wanted me to have it. I don’t know whether he was just talking about it or whether he had changed his mind. And as I say, when the dividend check came he told me he had definitely given it to me”; that no one was present at any of the conversations that she had with her father about the stock; that she did not “receive any dividends on this stock except the dividend represented by the check dated July 15th, 1936”; and that “she did not know that she was supposed to receive any further dividends. ’ ’

Charlotte Nolan further testified that her father did not at any time in or out of the presence of Agnes McCue tell her that he was going to put the stock in her name temporarily because his creditors were pressing him and because he did not want to have it in his own name; that she never told' Mrs. McCue at any time that she did not like the idea of her father putting the stock in her name “because she was afraid she might get into trouble with the Government on income tax or inheritance tax”; that Mrs. McCue never asked her to execute any documents with reference to the stock; that she did not tell Mrs. McCue that she would very gladly sign the stock back to her father; that on July 15,1936, when she got the dividend check, she and her father were talking and Mrs. McCue came in and “told my father he was a fool, in plain English, and she said he could put the stock in her name, and my father told Mrs. McCue at the time he wanted to give it to me ’ ’; that after this conversation she did not have any further conversations with Mrs. McCue with respect to the stock; that she left her father’s home the week of July 20, 1936, “because I thought they were very intolerable”; that “Mrs. McCue made it very miserable” and they could not agree on anything; that prior to July 15, 1936 she had no intention of leaving Mrs. McCue’s home; that she made up her mind to leave Mrs. McCue’s home the week of July 20, 1936; that she then went to live with her mother in Bridgman, Michigan; and that she never told Mrs. McCue that she was going to live with the Scully girl.

James E. Murphy was called as a handwriting expert by plaintiff but he was not asked and he did not give his opinion as to whether the signature on the stock power was the genuine signature of plaintiff. He did testify, however, that in his opinion the “Signature Guaranteed” stamp which crossed the signature “Miss Charlotte Nolan” was placed on the stock power prior to the writing of the signature.

A. F. Adams, who signed the signature guaranty in behalf of the Prairie State Bank and S. P. Tomaso, were called as witnesses by defendant in rebuttal and they both testified that the signature “Miss Charlotte Nolan” was on the stock power before the bank’s “Signature Guaranteed” stamp was placed thereon.

On October 26, 1940 the master filed his report, wherein he found: (1) that John J. Nolan was the beneficial owner of the stock and that he received the proceeds of the sale, and (2) that the signature on the irrevocable stock power was the genuine signature of plaintiff; and recommended that plaintiff’s complaint be dismissed for want of equity. Plaintiff filed objections to the master’s report which were ordered to stand as exceptions. Several .hearings were held by the chancellor on these exceptions and after he had indicated that he was going to enter a decree in conformity with the findings and recommendation of the master, plaintiff filed a petition asking that the cause be re-referred to the master for two reasons: (1) that plaintiff’s attorneys had just learned that Branko M. Steiner had a conversation in August 1937 at the Prairie State Bank with S. P. Tomaso (who had testified for defendant on the original reference), wherein Tomaso had told Steiner that he knew nothing about the American Telephone and Telegraph Company stock received by Nolan as the result of the settlement with his former wife; and (2) that her attorneys desired to further interrogate plaintiff’s handwriting expert, who had not been asked his opinion as to the genuineness of plaintiff’s signature on the stock power, when he testified on the original reference. The chancellor allowed plaintiff’s motion and ordered that the cause be re-referred to the master in chancery for further hearing.

On the hearings on the re-reference plaintiff presented the testimony of Attorney Steiner, her sister and her stepfather for the purpose of showing that S. P. Tomaso, vice president of the Prairie State Bank, had told Steiner in effect on August 5, 1937 that he knew nothing about the American Telephone and Telegraph Company stock received by Nolan as a part of the settlement with his wife. This testimony introduced on plaintiff’s behalf was so completely refuted by evidence presented by defendant that it would serve no useful purpose to either recite or discuss it.

The only other evidence presented by plaintiff on the re-reference was the testimony of James E. Murphy, her handwriting expert, that in his opinion the signature, “Miss Charlotte Nolan,” on the irrevocable stock power was not signed by plaintiff.

The master filed his report on re-reference and in his findings therein he, did not even mention any of the evidence presented thereon except the testimony of plaintiff’s handwriting expert, Murphy, which he stated he was unable to reconcile with the testimony of Walter, defendant’s handwriting expert, given on the original reference. He further stated in his repprt that the testimony of Walter and Murphy was so hopelessly contradictory and conflicting “as to have been of no aid to the master in determining the question of the genuineness of the signature of plaintiff on the irrevocable stock power.” It was then stated in the report that the master had disregarded the testimony of Tomaso because “of his general demeanor as a witness and because of his false statement in writing that the instrument [stock power] was signed and delivered in his presence.” Tomaso did appear as a witness on the re-reference but his testimony was confined to a denial of his alleged conversation with Steiner on August 5, 1937. As already stated, the testimony introduced on plaintiff’s behalf as to this purported conversation was so completely refuted that the master did not even mention, it in any finding in his report and therefore nothing occurred on the re-reference to justify any adverse finding by the master as to Tomaso’s general demeanor as a witness or as to any testimony given by him on the original reference.

The master also found in his report on re-reference that “the witness Agnes McCue gave indication on the witness stand and during the proceedings as being quite biased and hostile toward her niece, Charlotte Nolan”; and that “plaintiff was just past twenty-three years of age at the time her testimony was given and appeared to be a frank and truthful person and gave her testimony in a frank and straightforward manner, and her frankness was just as evident during a severe cross-examination as it was when questioned by her own attorneys.” Neither Mrs. McCue nor Charlotte Nolan testified ,on the re-reference and the record discloses nothing that occurred on the re-reference that could possibly account for the master’s change of opinion as to the credibility, demeanor, bias or hostility of Mrs. McCue or of Tomaso or of the frankness or truthfulness of Charlotte Nolan since he filed his report on the original reference.

The master then found that the signature appearing on the irrevocable stock power was not the genuine signature of plaintiff. He did not, however, change his finding contained in his report on the original reference that plaintiff’s father was the beneficial owner of the stock in question and had received the proceeds of the sale thereof and he did not change the recommendation made in his original report that plaintiff’s complaint be dismissed for want of equity. Objections filed by defendant to the master’s report on re-reference and by plaintiff to his report on the original reference were ordered to stand as exceptions. The trial court overruled defendant’s exceptions to the report on re-reference, sustained plaintiff’s exceptions to the report on the original reference and entered the decree in favor of plaintiff from which this appeal is taken.

There were two questions before the chancellor for determination: (1) whether or not Nolan during his lifetime made a gift of the 100 shares of stock involved herein to his daughter, Charlotte, and (2) whether or not plaintiff signed the irrevocable stock power, authorizing her father to pledge and sell such stock. Since Nolan was unquestionably the owner of this stock when he caused it to be transferred to plaintiff on the books of the defendant company and a new certificate issued in her name on June 12, 1936, such transfer constituted a constructive or symbolic delivery of the stock to her (Chicago Title & Trust Co. v. Ward, 332 Ill. 126), and since it is presumed that when a father transfers or delivers property belonging to him to his daughter a gift of same is intended, the burden was on defendant to prove that Nolan did not intend to make a gift of the stock to plaintiff. On the second question it was incumbent upon plaintiff to prove that her signature was forged on the irrevocable stock power.

Defendant first contends that the trial court “erred in rejecting the master’s recommendation that plaintiff’s complaint be dismissed for want of equity and in decreeing, contrary to the master’s finding, that plaintiff is the equitable owner of the stock,” because (1) “the finding in the decree that plaintiff is the equitable owner of the stock is against the manifest weight of the evidence, which shows beyond doubt that plaintiff’s father caused the certificate to be issued in plaintiff’s name merely as his nominee” and (2) “the absence of intention on the part of plaintiff’s father to make a gift of the stock in question prevents the transaction from constituting a gift.”

As heretofore indicated, the facts disclosed by the evidence heard by the master on the original reference and the findings in his report in respect thereto convinced the trial court that Nolan was the equitable owner of the stock when he caused it to” be sold and that he caused the certificate to be issued in Charlotte’s name merely as his nominee. It was only because the chancellor was so convinced that plaintiff sought the re-reference. Not a particle of evidence was presented to the master on re-reference that could or did actuate him to change or modify the finding in his report on the original reference that Nolan was the equitable owner of the stock at the time he sold it.

While it is true that when a father delivers property of his to his daughter a presumption of fact arises that a gift of same was intended, it is also true that such presumption is not conclusive and may be rebutted by proof. Intention to give being just as essential to a completed gift as delivery of the subject matter thereof and defendant claiming that Nolan did not intend to make a gift of the stock in question to Charlotte, it was incumbent upon it to show Nolan’s absence of intention to make a gift of the stock to her by clear and convincing evidence. We are satisfied that defendant met its burden and that the evidence shows unmistakably and beyond doubt that Nolan did not intend to make a gift of the stock to plaintiff but that he intended to and did place it in her name merely for the purpose of having her hold it as his nominee and for his benefit.

Just what is the factual picture presented here? Nolan’s financial affairs were in bad shape and he was worried about his creditors. After 8 years of litigation with his former wife he received in settlement a certificate for 100 shares of defendant’s stock, which had been issued to Josephine Nolan Taglia and indorsed by her in blank. Between the time he received this stock certificate in the latter part of May 1936, and June 12, 1936, when he caused it to be cancelled and a new certificate issued in plaintiff’s name, Nolan told Attorney Higgins, Tomaso, his banker, and Mrs. McOue, his sister, that he intended to place the stock in Charlotte’s name as his nominee and for his benefit. According to Attorney Higgins, Nolan also told him that Charlotte had agreed to hold the stock for him until he (Nolan) wanted to sell it. According to Mrs. McCue, Nolan told Charlotte in her presence prior to June 12, 1936 that he was going to put the stock in her (Charlotte’s) name until its price went up and he desired to sell it. After the certificate was issued in Charlotte’s name on June 12, 1936 it was delivered through the bank to Nolan. He continued to treat the stock as his own and, requiring funds in the early part of July 1936, he applied to the bank for a loan on the stock. He procured this loan on July 7, 1936 by delivering the certificate of stock to the bank as collateral along with a stock power, a power to hypothecate and a collateral note ostensibly executed by plaintiff. According to Charlotte, she did not even know on July 7, 1936, when her father made the loan at the bank, that the stock certificate had been issued in her name. Nolan still continued to treat the stock as his own, when he caused it to be sold by the bank on September 2, 1936 and received the proceeds of the sale.

Plaintiff’s claim is based solely on her uncorroborated testimony that when the dividend check arrived through the mail about July 15, 1936, made out in the name of “Miss Charlotte Nolan,” she told her father that she was “mystified” and that then he said, “I wanted to surprise you . . . You did not know that you were the owner of stock”; and that he also said that he wanted to give it to her, wanted her' to keep it and wanted her to have it. It must be remembered that prior to the time of this purported conversation on July 15, 1936, her father, in making the loan on July 7,1936, had already pledged the stock certificate and no longer had it in his possession and that, according to plaintiff, he had forged her signature or caused it to be forged on the stock power, the power to hypothecate and the collateral note.

Her counsel attempt to portray plaintiff as an inexperienced school girl and unfamiliar with business affairs in June and July 1936. However, she had a bank account of her own for a considerable period prior to that time and, according to her own testimony, she knew when the check arrived on July 15,1936 that it was a dividend check. Although plaintiff’s father did not die until June 29, 1937, she admitted that she made no inquiry of him concerning the certificate of stock in question or dividends payable thereon subsequent to July 15, 1936 and that she made no inquiry of defendant in relation to same prior to August 1938.

Plaintiff’s testimony that her father told her on July 15, 1936 that he had made a gift of the stock to her stands alone and uncorroborated by a single fact or circumstance in evidence. On the other hand a reputable lawyer, a reputable banker and plaintiff’s aunt testified positively that Nolan told them on separate occasions between the latter part of May and June 12, 1936 that he intended to have certificate G101868 transferred and a new certificate issued in plaintiff’s name for the purpose of having her hold same for him. None of these witnesses have any personal interest in the ease and their testimony stands uncontroverted and unimpeached. Certainly there is no reason disclosed by the record why Attorney Higgins, Tomaso or Mrs. McCue would commit perjury to aid the defendant and to injure plaintiff. Aside from the direct testimony of these witnesses that Nolan told them that he did not intend to make a gift of the stock to plaintiff, in the light of all the other facts and circumstances in evidence it is highly improbable that Nolan would litigate eight years to obtain this stock and then immediately give it to plaintiff, and this is especially true when it is considered that Nolan’s financial affairs were in a precarious condition at the time and he had manifested worry about his creditors. The fact that it would have been improvident for Nolan to have given away the stock is a strong indication of his intent not to make a gift of it to plaintiff. It is also highly improbable that plaintiff’s father would inform her that he had made a gift of the stock to her after he had already pledged it as collateral for a loan, and certainly he would not have so informed her if, as plaintiff claims, he had already forged her signature or caused it to be forged in connection with the loan. It is neither plausible nor credible that plaintiff would make no inquiry with reference to dividends on the stock during the year her father lived after the certificate was issued in her name and almost for an additional year after he died, if she understood on July 15, 1936 that the stock had been given to her by her father. It is not plausible that Attorney Steiner, who then represented plaintiff and her sisters and brother, would have made a search for the certificate of stock in question as an asset of her father’s estate in August of 1937, if plaintiff believed that she owned the stock.

In sustaining plaintiff’s exceptions to the original report of the master and in finding that she was the beneficial owner of the stock, the chancellor held that the statements of his intention in regard to the stock made by plaintiff’s father to Attorney Higgins, Tomaso and Mrs. McCue out of the presence of plaintiff were incompetent as being hearsay and should therefore be disregarded. Defendant insists that Nolan’s statements of intention to the foregoing witnesses “made contemporaneously with or shortly prior to his causing the certificate to be issued in plaintiff’s name were admissible and that it was error to eliminate such testimony as hearsay.”

The statements of Nolan to these witnesses shortly prior to or contemporaneously with the issuance of the certificate in plaintiff’s name, even though made out of her presence, were unquestionably competent and admissible to show that he did not intend to make a gift to her of the certificate or of the stock represented by it. The rule applicable to evidence such as that under consideration is clearly stated in Restatement of the Law of Trusts, vol. II, sec. 443, at p. 1357:

“a. Admissibility of parol evidence to rebut the inference of a gift. Where one person pays the purchase price for property which is transferred at his. direction to another who is a natural object of his bounty, parol evidence is admissible to show that the payor intended that the transferee should not have the beneficial interest in the property, even though the property transferred was an interest in land and the Statute of Frauds is in force. The intention of the payor not to make a gift to. the transferee may be shown not only by oral declarations of his intention, bnt also by the circumstances under which the transfer is made. Thus, the fact that it would be improvident for the payor to make a gift to the transferee is an indication that he did not intend to make a gift. So also, the fact that the circumstances are such that the payor would have a reason for taking title in the name of another other than' an intention to give him the beneficial interest is an indication that he did not intend to make a gift; as, for example, where the payor had reasons for wishing that it should not be known that he was purchasing the property.”

It has been repeatedly and uniformly held in this and other jurisdictions that prior or contemporaneous declarations of an alleged donor are admissible to show that a particular transaction was not intended as a gift, intent being a distinct and essential element of a gift (O’Donnell v. O’Donnell, 303 Ill. 31; Herrin v. McCarthy, 339 Ill. 530; Dodge v. Thomas, 266 Ill. 76; Whitney v. Wheeler, 116 Mass. 490; Commonwealth v. Trefethen, 157 Mass. 180; Lee v. Mitcham, 98 F. (2d) 298; Chichester Chemical Co. v. United States, 49 F. (2d) 516; 28 C. J., sec. 80, p. 675; and McKelvey on Evidence, Third Ed., sec. 154, p. 306).

In Mutual Life Ins. Co. v. Hillmon, 145 U. S. 285, a leading case on this subject, the court said at p. 295:

“A man’s state of mind or feeling can only be manifested to others by countenance, attitude or gesture, or by sounds or words, spoken or written. The nature of the fact to be proved is the same, and evidence of its proper tokens is equally competent to prove it, whether expressed by aspect or conduct, by voice or pen. When the intention to be proved is important only as qualifying an act, its connection with that act must be shown, in order to warrant the admission of declarations of the intention. But whenever the intention is of itself a distinct and material fact in a chain of circumstances, it may be proved by contemporaneous oral or written declarations of the party.
“The existence of a particular intention in a certain person at a certain time being a- material fact to be proved, evidence that he expressed that intention at that time is as direct evidence of the fact, as his own testimony that he then had that intention would be. After his death there can hardly be any other way of proving it; and while he is still alive, his own memory of his state of mind at a former time is no more likely to be clear and true than a bystander’s' recollection of what he then said . . . .” (Italics ours.)

Plaintiff’s counsel, apparently convinced the trial court that the case of Chicago Title & Trust Co. v. Ward, 332 Ill. 126, was of controlling importance on the question of Nolan’s intention to make a gift of the stock to plaintiff, since in a written opinion filed by the chancellor in deciding this case, he seemed to rely strongly on the Ward case. That case has no application to any controverted issue in this case. It is controlling only on the proposition that causing a stock certificate to be transferred on the books of a corporation constitutes constructive or symbolic delivery to the transferee. The constructive delivery of the stock certificate to plaintiff is admitted here but defendant insists that Nolan in making such delivery had no intention of making a gift of the stock to her.

The numerous authorities cited clearly establish the competency and admissibility of the testimony of Attorney Higgins, S. P. Tomaso and Mrs. McCue as to Nolan’s statements to them of his intention in respect to the stock in question and, in our opinion, if the chancellor had not erroneously disregarded this testimony as hearsay, he could not have reached any other conclusion than to confirm the finding of the master in his report on the original reference that Nolan was the beneficial owner of the stock and as such properly received the proceeds of its sale.

Plaintiff’s counsel argue at length that defendant is not relieved of an admission made in its original sworn answer to the complaint because of the fact that it later filed an amended answer in which the admission was not made. The complaint alleged that plaintiff “is and was at all times since June 12, 1936, the legal and equitable owner” of the stock in question. The first paragraph of the original answer was in part as follows:

“Defendant denies that plaintiff is now or has been at any time since on or about September 2, 1936 the legal and equitable owner of the 100 shares of capital stock of defendant represented by certificate G102232.”

It is true that the allegation of the complaint that plaintiff was the beneficial .owner of the stock at all times since June 12, 1936 was not specifically denied by the original answer but neither was it specifically admitted that plaintiff was such beneficial owner during the period alleged. The defendant did not intentionally and explicitly admit that plaintiff was ever the beneficial owner of the stock and the most that can be said of the claimed admission is that by reason of the defendant’s failure to specifically deny plaintiff’s beneficial ownership, such beneficial ownership was constructively admitted by operation of section 40 of the Civil Practice Act (par. 164, ch. 110, Ill. Rev. Stat. 1943 [Jones Ill. Stats. Ann. 104.040]). After it had been shown to the trial .court that, when defendant filed its original answer, it did not have knowledge of the facts in connection with the issuance of the stock certificate in plaintiff’s name on June 12, 1936, and that it first learned the facts in reference thereto in March 1940, it was granted leave to file an amended answer, wherein it specifically denied that plaintiff was the beneficial owner of the stock at any time. Plaintiff did not offer the original answer in evidence. In City Nat. Bank & Trust Co. of Chicago v. Oberheide Coal Co., 307 Ill. App. 519, we said at p. 522: “The better rule would seem to be that an abandoned pleading should be offered in evidence by the party wishing to have it considered an admission.” In any event, defendant’s admission in its abandoned original answer was not conclusive but merely adverse evidence and it was entitled to little, if any, consideration, inasmuch as the evidence considered in its entirety shows conclusively that plaintiff was never the beneficial owner of the stock.

We are impelled to hold that the finding in the decree that plaintiff is and was at the time her father sold it the beneficial owner of the 100 shares of American Telephone and Telegraph Company stock involved herein is against the manifest weight of the evidence and that the chancellor erred in failing to confirm the finding in the report of the master on the original reference that Nolan was the beneficial owner of the stock in question and in rejecting the master’s recommendation that plaintiff’s complaint be dismissed for want of equity.

Since under the law a beneficial owner of stock may use it as his own (Gahagan v. Whitney, 359 Ill. 419, 423) and since the stock was issued in plaintiff’s name merely-as the nominee of her father and he, the beneficial owner, received the proceeds of the sale, she is not entitled to a decree in her favor, even though she did not sign the stock power. However, we will consider defendant’s contention that “the signature on the irrevocable stock power is the genuine signature of plaintiff and the decree and master’s report on re-reference, wherein said signature is found to be a forgery, are against the manifest weight of the evidence.”

It will be recalled that the master’s report on the original reference found that “the signature on the irrevocable stock power was the genuine signature of plaintiff,” that in his report on the re-reference he found that “the signature appearing on the irrevocable stock power was not the genuine signature of plaintiff” and that he reached the latter conclusion by disregarding the testimony of the handwriting experts for both parties as being irreconcilable and hopelessly contradictory and conflicting, by disregarding the testimony of Tomaso because “of his general deméanor as a witness and because of his false statement in writing that the instrument [stock power] was signed and delivered in his presence, ’ ’ by disregarding the testimony of Mrs. McCue because she appeared to be “quite biased and hostile toward her niece” and by finding that plaintiff “appeared to be a frank and truthful person.”

As already shown, neither Mrs. McCue nor plaintiff testified at all on the re-reference and, while Tomaso did appear as a witness on the re-reference, his testimony consisted solely of a denial of a purported conversation Attorney Steiner claimed to have had with him. Attorney Steiner’s testimony as to this conversation was completely refuted by evidence presented by defendant. Therefore nothing occurred in respect to Tomaso or his testimony on the re-reference that warranted the master in disregarding his testimony on the original reference because “of his general demeanor as a witness.” Tomaso testified on the original reference that plaintiff did not sign the stock power in his presence but that after comparing her signature on the stock power with her signature on her signature card on file at the bank in connection with her savings account he accepted it as authentic. Tomaso also testified on the original reference that in his opinion the signature on the stock power was the genuine signature of plaintiff. Mrs. McCue testified on the original- reference that she saw plaintiff sign the stock power under the circumstances herein-before related. Obviously the master believed the testimony of Tomaso and Mrs. McCue on the original reference as to the genuineness of plaintiff’s signature on the stock power, since he found in his report on the original reference that “the signature on the irrevocable stock power was the genuine signature of plaintiff.”

While the master found in his report on re-reference, upon which plaintiff did not testify, that she was frank and straightforward in her testimony on the original reference, he obviously was not so favorably impressed with her frankness when he found in his report on the original reference that she did sign the stock power, notwithstanding her testimony that she did not sign it. We might add that, after a careful examination of the complete transcript of plaintiff’s testimony, we are not impressed with her frankness.

Included in the record are twelve admitted signatures of plaintiff and her disputed signature on the stock power. As to the comparison of signatures it was said in Fekete v. Fekete, 323 Ill. 468, at p. 482: “In arriving at a conclusion by comparison we are in as good a position to arrive at a correct result as the chancellor . . . . ” During the course of the hearings on plaintiff’s exceptions to the report of the master on the original reference the chancellor after comparing the signature on the stock power with plaintiff’s admitted signatures made this statement: “I have' been looking at the signatures and you admit this is her signature, and not being a handwriting expert but at least having a layman’s experience and observation, I would say they were one and the same. ’ ’ Five of plaintiff’s twelve admitted signatures were written by her before she conceived the idea of instituting this suit and the signature on the stock power is strikingly similar to those five signatures. The other seven admitted signatures were written by plaintiff after she decided to bring this action — two of them were signed to her complaint and the other five were written by her at the suggestion of defendant’s counsel at one of the hearings before the master on the original reference. All seven of these signatures, in our opinion, show a deliberate effort on the part of plaintiff to disguise her handwriting. At least four of the specimens of plaintiff’s signature that were written before her complaint was filed and the signature on the stock power were written with a so-called ball pen or one that was rather stub nosed. Unquestionably appreciating this fact, when plaintiff was asked to sign her name before the master, she insisted on writing her signature with a sharp pointed pen. We think that, notwithstanding plaintiff’s obvious attempt to disguise these seven signatures, the signature on the stock power resembled them in general appearance and has numerous characteristics in common with them. At least it can be said that these seven signatures are no more dissimilar to the signature on the stock power than they are to her other admitted signatures.

This brings us to the consideration of the testimony of the handwriting experts which the master disregarded and which contains a mass of minute details too extensive to set out in an opinion. We have carefully examined all of the testimony of Walter, defendant’s handwriting expert, and find that it was of the type aptly characterized by the Supreme Court in Fekete v. Fekete, supra, where it was said at p. 483: “ ... the opinion of an expert may be of great value where it calls the attention of the court to facts which are capable of verification by the court which the court otherwise would probably have overlooked, and the opinion of the expert is based upon such facts and is in harmony therewith.” We think that the master in his report on re-reference and the chancellor in passing upon such report improperly disregarded Walter’s testimony that in his opinion “the signature ‘Miss Charlotte Nolan’ on the irrevocable stock power was signed by the same person who signed numerous admitted standards of plaintiff’s handwriting. ’ ’

In addition to the foregoing there are numerous circumstances in evidence that would seem to preclude the total lack of necessity on the part of Nolan to forge plaintiff’s signature on the stock power or to cause it to be forged. Charlotte was on good terms with her father on July 7, 1936, when he made the loan, and, according to her testimony, she did not know at that time that the stock -had been issued in her name. Certainly Nolan in that situation would have had no fear of plaintiff refusing to comply with his request to sign the stock power and would not have elected to forge her signature or cause it to be forged rather than to request her to sign that instrument.

It was incumbent upon plaintiff to prove that her signature was forged to the stock power and again we find that the only direct evidence presented by her in support of such charge was her own uncorroborated testimony as an interested witness. The only other evidence presented by her was the opinion evidence of her handwriting expert, Murphy, who' should not even have been permitted to testify on the re-reference, because it is admitted that the omission of plaintiff’s counsel to ask his opinion on the original reference as to the genuineness of the signature on the stock power was not inadvertent but deliberate and intentional. In any event, we have carefully examined his testimony and find that it was based principally upon hypothesis. It was therefore of little value and we are not impressed with it.

It is difficult to understand why the master in his report on re-reference reversed the finding in his report on the original reference that the signature on the stock power was plaintiff’s genuine signature, since nothing occurred on the re-reference that could possibly justify such reversal, even though the testimony of both of the handwriting experts was eliminated from consideration.

It is interesting to note that the theory of fact of plaintiff’s verified complaint was not that her father owned the stock and made a gift of it to her but rather that some unknown person obtained possession of the stock certificate without her permission, forged her signature to the stock power and sold the stock. It was not until defendant’s investigation disclosed her father’s ownership of the stock and the circumstances under which he caused the stock certificate to be issued in her name and alleged such facts and circumstances in its amended answer that plaintiff was driven to take the position in her reply to the amended answer that her father made a gift of the stock to her.

After plaintiff’s reply was filed there was no longer any question in this case of an unknown person obtaining possession of the stock certificate without her permission and forging her name to the stock power. She was then confronted squarely with the proposition of admitting that she signed the stock power or accusing her father of forging her signature thereon or causing it to be forged. Plaintiff chose the latter course and did not hesitate to brand her dead father as a felon in her attempt to recover on what has been shown to be an unjust claim.

We are compelled by the facts to hold that the finding and adjudication in the decree that the signature on the stock power was not the genuine signature of plaintiff are against the manifest weight of the evidence.

Other points are urged and numerous authorities cited, which we have considered', but in the view we take of this case we deem it unnecessary to discuss them, since, to do so, would only serve to further lengthen this already long opinion.

For the reasons indicated herein the decree of the superior court of Cook county is reversed and the cause is remanded with directions to enter a decree dismissing plaintiffs complaint for want of equity.

Decree reversed and cause remanded with directions.

Friend and Scanlan, JJ., concur.


source: Caselaw Access Project

license: Public Domain

text:
    Alfred Lubin, Appellant, v. Equitable Life Assurance Society of United States, Appellee.
    Gen. No. 42,933.

      Heard in the second division of this court for the first district at the December term, 1943.
    Opinion filed June 15, 1945.
    Released for publication June 27, 1945.
    David H. Caplow, Sol Andrews and Maurice L. Davis, all of Chicago, for appellant.
    Mayer, Meyer, Austrian & Platt, of Chicago, for appellee; Miles G. Seeley, of Chicago, of counsel.
   Mr. Presiding Justice Sullivan

delivered the opinion of the court.

By this appeal plaintiff, Alfred Lubin, seeks to reverse a final order dismissing this action for want of equity, which order was entered on the motion of defendant, Equitable Life Assurance Society of the United States.

Nineteen separate plaintiffs, including the plaintiff herein, filed nineteen separate suits in equity against nineteen mutual life insurance companies, each plaintiff, a former policyholder, claiming to represent in each suit all other former policyholders who were similarly situated in respect to the defendant company in that suit and praying for an accounting and distribution to such former policyholders of their proportionate shares of that portion of undistributed surplus funds held by the respective companies, which were accumulated during the time the plaintiffs’ policies were in force.

A motion to dismiss, under sections 45 and 48 of the Civil Practice Act (pars. 169 and 172, ch. 110, Ill. Rev. Stat. 1943 [Jones Ill. Stats. Ann. 104.045, 104.048]), was filed by the defendant in each of the nineteen cases. Each motion attacked the respective complaints on several grounds. In all of the nineteen cases the motions to dismiss were sustained and, each plaintiff electing to stand on his complaint and to suffer judgment of dismissal, a final order was entered in each case which dismissed the action for want of equity. Separate appeals, which were perfected in the nineteen cases, have been consolidated for hearing in this court.

The allegations of the complaints in the nineteen cases are essentially the same and each of them averred substantially that the defendant is a mutual life insurance company organized in a State other than Illinois ; that plaintiff is a former policyholder and member of the defendant insurance company and that after the policy was issued' to him by said defendant the premiums were paid as long as his policy remained in force; that a surplus fund was accumulated by the defendant in excess of the legal reserve and the fund set apart each year for the payment of dividends and that this surplus belongs in equity to all of the members who contributed to the same in proportion to their respective contributions during the time they were members of the defendant company; and that by the payment of premiums on Ms policy, plaintiff contributed to tMs fund which now amounts to several million dollars.

It was further alleged that other policyholders paid premiums on their policies until they either lapsed, were cancelled or were surrendered and that by so doing they likewise contributed to the surplus fund; that plaintiff brings this suit for himself and others in like situation; and that this fund is held by the defendant in trust for him and all other former policyholders he purports to represent. The complaint concluded with a prayer for an accounting, appointment of a receiver and the distribution of the surplus fund according to the interests of the parties therein.

The theory of the complaint of the plaintiff herein, as well as that of the plaintiffs in the other eighteen cases, as stated in their brief is as follows:

“In mutual insurance companies, the assets of the company, including the surplus, are held by the company for the benefit of all of the members. The members are entitled to participate in the surplus accruing during the terms of their membership, in proportion to their contributions to such surplus, through the payment of premiums. This right is not lost when a policy lapses or is surrendered or matures; for the issuance of a policy of insurance creates the status of membership, and the right to participate in the surplus, flowing from such status, does not end with the expiration of the insurance coverage prpvided for in the policy. A right to distribution of the interest of any policyholder, in the entire undistributed surplus accruing during the period in which the policy remained in force, arises immediately upon the lapse or surrender or maturity of the policy.”

We deem it appropriate at this point to explain just what the “surplus” is which the plaintiffs seek to have distributed to them in proportion to their contributions thereto, through their payment of premiums while they were members of the defendant companies and their policies were in force. The statutes of the state in which each of the defendants is domiciled require that a reserve equal to the present value on a net premium basis of all outstanding policies must be set aside and maintained. Such reserve is generally called the “legal reserve.” The legal reserve is not a surplus but is considered a liability. Surplus is the excess of assets each year over the legal reserve and other liabilities, which consist principally of losses and expenses of operation. Such surplus is usually referred to as the “total surplus” of an insurance company. That portion of the total surplus determined by each company’s board of directors to be available for dividends is called the “divisible surplus.” Only what remains of the total surplus in any year after the divisible surplus has been determined and set apart for the payment of dividends constitutes what will be variously referred to hereinafter as the “contingency reserve” or “safety fund.” The contingency reserve or safety fund as determined at the end of each year is added to the contingency reserve or safety fund previously accumulated since the inception of each of the defendant companies. Such contingency reserve funds were created and are maintained by the defendants as an additional factor of safety for the protection of their policyholders against extraordinary hazards, such as major epidemics, wars and financial crises or panics. It is to compel the payment to them and other former policyholders of what they claim to be their proportionate shares of each of the defendant company’s contingency, reserve or safety fund that plaintiffs have instituted these suits.

All but four of the nineteen defendant companies are expressly authorized by statute in the States where they were incorporated and are domiciled to create and maintain a contingency reserve or safety fund. As to two of the four defendant companies which are not so specifically authorized by the statutes of the States of their domicile, it was' clearly contemplated by the statutes of those States that mutual life insurance companies might create and maintain contingency reserve or safety funds. As to the other two of said four defendant companies the statutes of the States of their domicile (Connecticut and Vermont) contain no provision with .respect to the creation and maintenance of contingency reserve or safety funds but neither do the statutes of those States contain any provision that could be construed as prohibiting a mutual life insurance company from accumulating a contingency reserve' or safety-fund. In Iowa, where one of th§ defendant companies is domiciled, there is no specific statutory provision authorizing the accumulation of a contingency reserve or safety fund but the Supreme Court of that State in three cases — Wall v. Bankers Life Co. of Des Moines, 208 Iowa 1053, 223 N. W. 257; Central Life Assur. Soc. v. City of Des Moines, 212 Iowa 1254, 238 N. W. 535; New York Life Ins. Co. v. Burbank, 209 Iowa 199, 216 N. W. 742 — expressly approved and commended the maintenance of contingency reserve or safety funds by mutual life insurance companies doing business in that State and held that former policyholders have no interest in such funds; that the amount thereof is a matter confided to the discretion of the board of directors of the particular insurance company; and that by analogy to the insurance statutes of New York a contingency reserve or safety fund not exceeding a company’s legal reserve is reasonable.

Several of the grounds alleged in the motions to dismiss filed in this and many of the other consolidated cases are not common to all of the cases but there are three grounds uniformly specified in each of the nineteen motions to dismiss. The substance of these three grounds, as stated in a brief filed in behalf of several of the defendants, is: “ (1) Plaintiffs have no rights or claims against defendants other than as are set forth in their policies of insurance. Bach policy provides for the manner in which and the extent to which plaintiffs were entitled to participate in the earnings of the defendant companies during the period that their policies were in force, and likewise specifies what each policyholder would be entitled to receive in the event of the lapse or surrender of the policy. None of the complaints alleges that the plaintiffs did not receive such benefits and rights as were provided in their policies of insurance. (2) The determination of the amount and the apportionment of surplus earnings to policyholders is a matter for the exercise of sound business discretion on the part of defendants’ boards of directors, acting under controlling statutes and decisions which expressly authorize them to set aside and maintain out of earnings a corporate surplus, contingency reserve or safety fund. None of the complaints alleges that the Board of Directors of any of the companies at any time during the continuation of plaintiffs ’ policies failed properly to determine the amount and apportionment of divisible surplus or in any way acted in fraud or by mistake. (3) An Illinois equity court does not have or, in the alternative, ought not to take equity jurisdiction to determine the plaintiffs’ proportionate share, if any, in the corporate surpluses, contingency reserves or safety funds accumulated during the years the plaintiffs were policyholders and to decree payment thereof to plaintiffs. Such inquiry would require the court to exercise visito rial powers and to interfere directly with the internal affairs and management of foreign corporations. Hence, none of the complaints alleged a cause of action of which an Hlinois court could or should take equity jurisdiction. ’ ’

Defendants insist that “policyholders in a mutual company are insured under contracts, and their rights are governed by such contracts”; and that “such rights do not include any ownership of the corporate property or right to a distribution thereof except pursuant to such contracts.” Plaintiffs’ complaints do not allege that they are entitled by virtue of their policy contracts to anything in addition to what they have already received thereunder but they rely wholly upon an alleged equitable property right in the contingency reserve or safety funds of the defendant companies, claimed to arise solely from the fact that in a mutual insurance company policyholders are members of the corporation.

That the rights and interests of policyholders in the assets of a mutual life insurance company are contractual in nature and are measured by their policies and by the statutes, charter and by-laws, if any, which comprise the terms of their contracts was definitely determined in Andrews v. Equitable Life Assur. Soc. of United States, 124 F. (2d) 788, (C. C. A. 7, 1941, cert, denied, 316 U. S. 682). In that case there was a consolidation upon appeal of fifteen suits identical with those involved in the present appeal. Some of the plaintiffs were the same persons, most of the defendant companies were the same and the theory of recovery asserted was exactly the same. The appeal in the Andrews case was disposed of by the circuit court of appeals on jurisdictional grounds but in order to arrive at such a disposition that court was compelled to determine the nature and source of the plaintiffs’ rights. There it was held at pp. 789 and 790:

“In our opinion, the rights of the plaintiff and the persons he purports to represent all stem from their policies in the defendant company. . . . The policy provides that it and the application attached thereto constitute the whole contract between the parties. Whatever rights a member of a mutual company has are delineated by the terms of the contract, and come from it alone. . . . The plaintiff says he does not depend for his rights upon the policy . . . . If the plaintiff depends upon anything but his rights under the contract contained in the policy, he depends upon something-that does not exist.” (Italics ours.)

(To the same effect are Equitable Life Assur. Soc. v. Brown, 213 U. S. 25; Greeff v. Equitable Life Assur. Soc., 160 N. Y. 19, 54 N. E. 712; Grobe v. Erie County Mut. Ins. Co., 169 N. Y. 613, 62 N. E. 1096; Polk v. Mutual Reserve Fund Life Ass’n, 137 Fed. 273.)

The principles plaintiffs rely upon in their brief are applicable, if at all, only to mutual life insurance companies which are engaged in business on the assessment plan and not to legal reserve mutual life insurance companies doing business on a fixed premium basis. Plaintiffs’ position that, although they are not entitled to the relief they seek on their policy contracts, they are entitled to such relief on the ground that they were members of the defendant mutual life insurance companies while their pol-' ieies were in force is wholly untenable.

In Huber v. Martin, 127 Wis. 412,105 N. W. 1031, in holding that even upon the dissolution of a mutual insurance company its surplus of assets over liabilities belongs only to those who were its members at that time, the court said at pp. 1039-1040 of the last mentioned report:

“Every policyholder knows, or ought to know, that he will remain a member so long as he remains a policyholder and no longer. He knows, or ought to know, that as soon as his membership relation is established he becomes possessed of an equitable interest in the assets of the company consisting of all accumulations prior to his time, and such as may be added thereto during his membership, but which cannot be realized on in possession in the absence of a necessary distribution of the surplus on account of the company going out of business, or in some proper way. He knows, or ought to know, that it is entirely optional with him whether to preserve his interest in the company and thereby protect his contingent rights, or to allow them to lapse by ceasing to be a member. He also knows, or ought to know, that in case of his interest so lapsing it will inure to the benefit of those associated with him who. chose to retain their memberships and those who come after him, the doors of the company swinging freely to let in new members and to let old ones out according to choice, those at any moment of time, being then and then only the owners of the company to all intents and purposes the same as members of any other corporation.”

While plaintiffs alleged in their complaints that their interests and the interests of the other former policyholders in the contingency reserve funds are held by the defendant companies “as a constructive trust for their use and benefit,” they do not advert to the constructive trust theory in their brief but seem to claim that a mutual life insurance company partakes of the nature of a. partner ship. Under this fallacious theory they argue in effect that the policyholders in the defendant companies occupy the position of partners or quasi partners and that immediately upon the lapse or surrender of their policies they became entitled to an accounting and to a distribution (return to themselves) of all they had paid in premiums during the time their policies were in force, in excess of the actual cost of their insurance coverage. If it were true that the policyholder members of mutual life insurance companies should be considered as partners, then a dissolution of the defendant companies would occur every time one of their policyholders died, permitted his policy to lapse or surrendered it for its cash value and a new partnership would necessarily come into being not only every day in the year but almost every hour of each day, since policyholders die, permit their policies to lapse or surrender them numerous times every day. The mere statement of plaintiffs’ partnership theory stamps it as preposterous.

It has been uniformly and repeatedly held that a mutual life insurance company does not partake of the nature of a partnership, that its policy contracts create the relationship solely of debtor and creditor between it and its policyholders and that neither present nor former policyholders have any right to compel a distribution of such a company’s contingency reserve or safety fund upon the alleged theory of a dissolved partnership. In Cohen v. New York Mut. Life Ins. Co., 50 N. Y. 610, the court said at pp. 623 and 624:

“It was also claimed that the defendant being a mutual company, of which all holders of policies were members, it was a partnership which was dissolved by the war.
“Trading and commercial partnerships, and perhaps all partnerships, are dissolved by war between the States of the several partners. But whatever analogies there may be between mutual companies and ordinary partnerships, and the relation of the members of the two organizations, an incorporated company, although organized upon the mutual principle, is in no proper or legal sense a partnership. The defendant is a body politic and corporate, capable of contracting and of suing, and being sued, and the relation between the plaintiff and the corporation is that of insured and insurer; and the rights and duties of the contracting parties are to be governed and determined by the terms of the policy by which the insurance is effected, as in other cases. Other and incidental rights are secured to the plaintiff as a member of the company, one of the corporators; but this does not make the members partners as between themselves or affect the express contract of the corporation.”

In People v. Security Life Ins. & Annuity Co., 78 N. Y. 114, it was said by the court at p. 122:

“But the claim is made on the part of some of the appellants that the holders of unmatured policies are not creditors, but partners in the company; . . . The argument that they are to be treated as partners is quite ingenious, but, I think, clearly unsound . . . But they who pay their money for insurance are no more jointly interested, or in any sense partners, than the depositors in a bank. . . . The fund produced by the payment of all the premiums does not in any sense belong to the policyholders, but belongs exclusively to the company; and the policyholders are interested in it in the same way only that the creditors of any other corporation are interested in its funds.”

In Uhlman v. New York Life Ins. Co., 109 N. Y. 421, a policyholder sued to obtain an accounting of the company’s profits and surplus. In holding that the plaintiff was not entitled to an accounting, as he had made no proof of any misappropriation or wrongdoing, the court said at p. 429:

“It has been held that the holder of a policy of insurance, even in a mutual company, was in no sense a partner of the corporation which issued the policy, and that the relation between the policyholder and the company was one of contract, measured by the terms of the policy.”

The law is settled that policyholder members of a mutual life insurance company are not partners therein and that the relationship of such a company to its policyholders is not that of trustee and cestui que trust but simply that of debtor and creditor. (Thomas v. New York & G. L. R. Co., 139 N. Y. 163; Grobe v. Erie County Mut. Ins. Co., 169 N. Y. 613; McCormack v. Security Mut. Life Ins. Co., 220 N. Y. 447; Crossman Co. v. Rauch, 263 N. Y. 264; Equitable Life Assur. Soc. v. Brown, 213 U. S. 25; Rhine v. New York Life Ins. Co., 248 App. Div. 120; Mutual Benefit Life Ins. Co. v. Hillyard, 37 N. J. Law 444.)

Defendants insist that “the determination of the amount and the apportionment of surplus earnings to policyholders is a matter for the exercise of sound business discretion on the part of defendants’ boards of directors, acting under controlling statutes and decisions which expressly authorize them to set aside and maintain out of earnings a corporate surplus, contingency reserve or safety fund.” Since none of the complaints alleged that the boards of directors of the defendant companies at any time while plaintiffs’ policies were in force failed to properly determine the amount and the apportionment of the divisible surplus or that such boards of directors acted unlawfully, wrongfully or by mistake in making such determination or in determining the amount of the contingency reserve or safety fund necessary to be maintained to protect the interests of existing or future policyholders, the insufficiency of the complaints in this regard alone constituted adequate ground for their dismissal.

In Equitable Life Assur. Soc. v. Brown, 213 U. S. 25, the plaintiff sought to compel a distribution of the defendant’s corporate surplus or contingency reserve fund, which was eighty million dollars in excess of its required legal reserves and the maintenance of which was alleged to be unlawful and unnecessary for the prudent management of its business. The court said at p. 47:

“We also think that there is no ground for the contention on the part of the complainant that he, as a policyholder, had any right to an accounting, and to compel the distribution of the surplus fund in other manner or at any other time, or in any other amounts than that provided for in the contract of insurance. By that contract he was entitled to participate in the distribution of some part of the surplus, according to the principles and methods that might be adopted from time to time by the defendant for such distribution, which principles and methods were ratified and accepted by and for every person who should have or claim any interest under the policy. It has been held that under such a policy how much of the surplus shall be distributed to the policyholder and how much shall, be held for the security of the defendant and its members is to be decided by the officers and management of the defendant in the exercise of their discretion to distribute, having in mind the present and future business, and, in the absence of any allegations of wrongdoing or mistake by them, their determination must be treated as proper, and their apportionment of the surplus is to be regarded prima facie as equitable.”

Defendants contend that the trial court should have declined to take jurisdiction of these nineteen cases because the plaintiffs ’ alleged rights are dependent upon matters involving the internal management of the defendant companies. There can be no question but that plaintiffs’ alleged rights depend upon matters involving the internal management of the defendant insurance companies, all of which are foreign corporations, and that the enforcement of such rights would require the exercise of visitorial powers. The rule is firmly established that no court, state or federal, will assume jurisdiction to interfere with or control the management of the internal affairs of a foreign corporation. In Rogers v. Guaranty Trust Co. of New York, 288 U. S. 123, 89 A. L. R. 720, the court held at pp. 130 and 131 of the first mentioned report:

“It has long been settled doctrine that a court — state or federal — sitting in one State will as a general rule decline to interfere with or control by injunction or otherwise the management of the internal affairs of a corporation organized under the laws of another State but will leave controversies as to such matters to the courts of the State of the domicile. (Citing many cases, including Babcock v. Farwell, 245 Ill. 14, 33, et seq.) While the district court had jurisdiction to adjudge the rights of the parties, it does not follow that it was bound to exert that power. Canada Malting Co. v. Paterson Steamships, 285 U. S. 413, 422, and anthorities cited. It was free in the exercise of a sound discretion to decline to pass upon the merits of the controversy and to relegate plaintiff to an appropriate forum. (Citing cases.) Obviously no definite rule of general application can be formulated by which it may be determined under what circumstances a court will assume jurisdiction of stockholders’ suits relating to the conduct of internal affairs of foreign corporations. But it safely may be said that jurisdiction will be declined whenever considerations of convenience, efficiency and justice point to the courts of the State of the domicile as appropriate tribunals for the determination óf the particular case.”

In Babcock v. Farwell, 245 Ill. 14, the court said at pp. 33 and 34:

‘ ‘ The general rule has been declared by the decisions of many courts and has been stated by text writers to be that the courts of one State will not exercise the power of deciding controversies relating merely to the internal management of the affairs of a corporation organized under the laws of another State or of determining rights dependent upon such management. . . . The reasons which influence courts of chancery to refuse to interfere in the management of the internal affairs of a foreign corporation are, that the rights arising between a corporation and its members out of such management depend upon the laws of the State under which the corporation is organized; that the courts of that State afford the most appropriate forum for adjudication upon the relation between the stockholders and the corporation, and that frequently such courts alone possess power adequate to the enforcement of all decrees that justice may require. It is the inability of the court to do complete justice by its decree, and not its incompetency to decide the question involved, that determines the exercise of its power. The general statement that courts will not interfere with the management of the internal affairs of foreign corporations must be construed in connection with the particular facts. The rule rests more on grounds of policy and expediency than on jurisdictional grounds; more on want of power to enforce a decree than ,on jurisdiction to make it. Where the wrongs complained of are merely against the sovereignty by which the corporation was created or the law of its existence, or are such as require for their redress the exercise of the visitorial powers of the sovereign, or where full jurisdiction of the corporation and of its stockholders is necessary to such redress, the courts will decline jurisdiction. Examples of such cases are suits to dissolve a corporation; to appoint a receiver; to determine the validity of its organization or which of two rival organizations is legal; to restrain it from declaring a dividend or compel it to make one; to restrain an issue of stock or of bonds; to compel a division of its assets; to restore a stockholder to his right to vote at stockholders’ meetings from which he has been excluded, or to compel the recognition of one claiming to have been elected a director.”

In Clark v. Mutual Reserve Fund Life Ass’n, 14 App. D. C. 154, 43 L. R. A. 390, it was said at pp. 179 and 180 of the first mentioned report:

“This prayer, like the preceding, requires a complete overhauling and scrutiny of the entire administration of the internal affairs of the corporation, from the time that the plaintiff became a member down to the present time; and nothing short of a full and complete account would eriable the court to decree in accordance with the prayer.
“It is thus apparent from the statement of the facts alleged in the bill, and from the several prayers based thereon, that the relief sought, if it could be granted, would require the control, direction, and revision .of the internal affairs of the corporation, by a court of equity of this District. This we think, upon the clearest authority, cannot be done. The law would seem to be too well settled to admit of a question, that where the acts complained affect the plaintiff in his rights of corporator, or stockholder, or as a member of a mutual benefit or insurance company or other corporation, and the acts are those of the corporation, done and performed in the course of the administration of the corporate affairs, and especially when claimed to have been done and performed, or authorized to be done, by virtue of authority derived from its charter or by-laws, the courts of another State or jurisdiction will not interfere or attempt to exercise jurisdiction to direct, control, or revise corporate action. To assume jurisdiction over the affairs of a foreign corporation, would inevitably lead to conflicting decisions, resulting in confusion and needless litigation, and the making of orders and decrees simply to be contemned, because not capable of being enforced.”

In Hamilton v. United Laundries Corp., 111 N. J. Eq. 78, 161 Atl. 347, the court said at pp. 80 and 81 of the first mentioned report:

“This court is unauthorized to regulate, or attempt to regulate the management of the internal affairs of a foreign corporation, through the medium of an injunction. Jackson v. Hooper, 76 N. J. Eq. 592, 75 A. 568, 27 L. R. A. (N. S.) 658. In Gregory v. New York, Lake Erie & Western Railroad Company, 40 N. J. Eq. 38, 44, Chancellor Runyon said: ‘It is almost too obvious for remark that this court cannot regulate the internal affairs of foreign corporations, nor can it enforce its decrees out of this state.’ In North State Copper, etc. Co. v. Field, 64 Md. 151, 20 A. 1039, 1040, the court says: ‘Where the act complained of affects the complainant solely in his capacity as a member of the corporation, whether it be as stockholder, director, president, or other officer, and is the act of the corporation, whether acting in stockholders’ meeting, or through its agents, the board of directors, then such action is the management of the internal affairs of the corporation,, and, in case of a foreign corporation, our courts will not take jurisdiction. The courts of this state do not possess such jurisdiction, and any suggestion of its assumption we emphatically repudiate. ’ ’ ’

To the same effect are Massachusetts v. Missouri, 308 U. S. 1; Eberhard v. Northwestern Mut. Life Ins. Co., 210 Fed. 520, aff’d 241 Fed. 353 (C. C. A. 6); Ellis v. Mutual Life Ins. Co. of New York, 237 Ala. 492, 187 So. 434.

The defendant companies were incorporated and have their domiciles in the District of Columbia and nine States other than Illinois. An accounting of the magnitude requested in plaintiffs’ complaints, if allowed, would require the defendants to remove a considerable portion of their records and a large number of their employees from their home offices to this State. This would place an intolerable burden upon the defendant companies and would not only interrupt the operation of their businesses but would practically disrupt their operation. Even if it could be assumed that plaintiffs’ complaints did state a cause of action, considerations of convenience, efficiency and justice point to the courts of the States of domicile of the defendants as appropriate forums for the determination of the claims presented by such complaints.

All of the contentions made in plaintiffs’ brief add up to the single contention that they, as former policyholders and members of mutual life insurance companies, and all other former policyholders similarly situated, whom they claim to represent, have the right to have distributed to them by the defendant companies such portion of their “contingency reserve” funds as they contributed thereto while their policies were in force. In so far as we have been able to ascertain, this contention has been rejected by every court of review in every jurisdiction in this country to which it has been presented. Upon analysis, the decisions of courts of review cited in plaintiffs’ brief either support defendants’ position and holds contrary to the theory of plaintiffs’ complaints or may be readily distinguished from the situation presented here.

In view of the fact that the law governing every aspect and phase of the theory of plaintiffs ’ complaints had been long and well established prior to the filing of said complaints, we are constrained to believe that the nineteen suits involved herein were instituted solely for what possible nuisance value they might prove to have.

Other additional grounds have been urged by many of the defendants in their motions for dismissal but in view of our conclusions upon the points that we have considered, we deem it entirely unnecessary to pass upon the additional grounds urged.

For the reasons stated herein the final order of the circuit court of Cook county dismissing the case of Alfred Lubin v. Equitable Life Assur. Soc. of United States for want of equity is affirmed.

Affirmed.

Friend, and Scanlan, JJ., concur.


author: Mr. Presiding Justice Matchett

text:
    Walter J. Rinn et al., Appellants, v. Broadway Trust and Savings Bank of Chicago et al., Appellees.
    Gen. No. 43,334.

      Heard in .the first division of this court for the first district at the February term, 1945.
    Opinion filed June 25, 1945.
    Rehearing denied July 19, 1945.
    Released for publication July 19, 1945.
    Harry J. Myerson and Lewis D. Ross, both of Chicago, for appellants; Meyer Abrams, of Chicago, of counsel.
    George F. Barrett, Attorney General, for certain appellee; William C. Wines, Assistant Attorney General, of counsel.
    Russell W. Root, of Chicago, for certain appellee.
    Jonas & Jonas and Chapman & Cutler, all of Chicago, for certain other appellees; Edgar A. Jonas and Roscoe C. Nash, both of Chicago, of counsel.
   Mr. Presiding Justice Matchett

delivered the opinion of the court.

This appeal is by plaintiffs from an order entered November 27, 1944. Counsel for defendants say: “There is only one question involved in this appeal and that is whether the court below had jurisdiction of the subject matter of the original complaint and the amended and supplemental complaint in Cause No. 44C3770. The defendants, Arthur C. Strassheim, et al. and George C. Sell, contend that the banking laws of Illinois expressly prohibit the courts from exercising jurisdiction over the subject matter of said cause,” citing ch. 16½, sec. 11 of Ill. Rev. Stat. 1943 [Jones Ill. Stats. Ann. 10.11]. For reasons hereafter stated, we hold that section of the statute does not apply.

The material facts appear to he undisputed. The situation, however, is unusual. On June 23, 1934, the hank, which theretofore had been incorporated as a banking corporation, was conducting its business at 2805 North Clark street in the City of Chicago. It had a capital stock of $200,000 divided into 2,000 shares of the value of $100 each. It had a board of directors of which Arthur C. Strassheim was president, William G. Wise, vice president and George C. Sell, cashier. These three, with Charles L. Conroy and C. F. Pogge, constituted the board of directors. The bank was in good financial condition. Its capital stock was fully paid up. It had a surplus of $40,000 and a further undivided surplus to an amount unknown. Plaintiff Binn was a shareholder and had been since November 25, 1929, holding five shares of the capital stock. Two other plaintiffs later joined him, the three holding together 130 shares. The bank was solvent. It had property more than sufficient to meet all liabilities. It owned real estate, stocks, loans, investments and other property.

On the 23rd day of June 1934, the board of directors passed a resolution to close the doors of the bank, discontinue the banking business and pay off its depositors and other creditors. On that day it ceased to receive deposits. By resolution of the board of directors George C. Sell was designated a liquidating trustee with directions to promptly liquidate and convert into cash all the assets and property of the bank, solely for the benefit of the shareholders. He entered upon his duties. Some depositors did not appear to claim the amounts due to them. On March 5, 1935, Sell, as liquidating trustee, deposited with the then state auditor the sum of $10,271.08, the full amount due depositors not appearing and pursuant to the statute. It was received, accepted and retained by the auditor in conformity with sec. 15, ch. 16½, Ill. Rev. Stat.1943 [Jones Ill. Stats. Ann. 10.16].

April 4, 1944, Walter J. Rinn, for himself and other stockholders, filed this suit against Sell, individually and as liquidating trustee, and the other directors and officers of the bank. His complaint was No. 44C3770. It charged misfeasance and malfeasance on the. part of Sell and other defendants after the bank closed; prayed discovery, an injunction, an accounting, distribution of assets to persons entitled and the dissolution of the corporation. Notice of application for discovery was at once given; in particular, the names of the other stockholders of the bank, which had been asked for and refused.

Defendants appeared, moved' to dismiss the suit, and the motions were denied. Plaintiff, after filing the bill, made a motion for the appointment of a successor trustee or receiver and for examination of the books. It was continued until April 17,1944. April 12, 1944, the bank, Arthur G. Strassheim, and Strassheim & Company made motions to dismiss the complaint on the ground it was insufficient in law and other reasons. Sell, on April 15, 1944, filed a like motion. April 17, 1944, the court ordered the parties to file briefs. An order was entered extending the time for hearing the motion for permission to examine the books to May 1.

In the meantime the auditor of public accounts on April 29,1944, caused a suit in the name of the People, to be filed in the circuit court against the bank. The complaint stated the auditor had begun an examination of the bank on April 17, 1944; that on April 28 he had determined the capital stock was impaired; that he had appointed Justin J. Jaeger of Geneva, Illinois, receiver.

June 26, 1944, without notice to any other than the bank (so far as the record discloses) the usual form of decree was entered before another judge, confirming the action of the auditor and granting the receiver the usual powers given in such cases.

On June 14, 1944, the motions of defendants, A. G-. Strassheim, Strassheim & Company, a corporation, the banking corporation and George C. Sell, as liquidating trustee and individually, came up for hearing. It was ordered that the motions of these defendailts to dismiss the complaint “heretofore filed herein on April 4, 1944, for want of jurisdiction, be, and the same are hereby overruled,” and defendants were ordered to answer within 15 days. At the same time the court entered an order providing that the cause should be consolidated with No. 44C4791, which was the suit brought by the auditor, and that further orders be entered in the consolidated cause. Subsequently there were many conflicting motions. The litigants appear to have forgotten an order theretofore entered that the assets should remain in statu quo.

On November 27, 1944, another chancellor came to preside in the court, and Sell, personally and as liquidating trustee, presented another motion. It was to set aside the order made June 14, 1944, denying the motions to dismiss the suit of plaintiffs and the order entered on the same day consolidating plaintiff’s suit with the later suit filed by the auditor. At the same time two other stockholders of the bank joined in the original suit brought by Einn. These gave notice of application of a motion for leave to file an amended and supplemental complaint in which they charge that the suit of the auditor in the name of the People was brought for the purpose of obstructing the plaintiff’s suit, which had been begun by stockholders. They asked leave to file this amended- and supplemental complaint and an order on the auditor and other defendants to answer. The motions of defendants were granted. The order consolidating the two .suits was set aside. The former order of the court,- denying the motion of defendants to dismiss the plaintiff’s suit, was also set aside, and plaintiff’s suit was dismissed for want of equity. The matter was made complete by the denial to plaintiffs of leave to file their amended and supplemental complaint which charged conspiracy and collusion between the auditor and the other defendants, and asked for rule to answer.

The net result of these several orders is to leave these several stockholders out of court. They are not allowed an accounting from Sell, who was their trustee, or the other defendants, who (if the allegations of the complaint are true, and they were verified) were guilty of grave wrongs. The result seems to be to leave these plaintiffs without remedy. The only answer made is that in the original suit of plaintiff the court was wholly without jurisdiction, and that the auditor under the statute had the exclusive right to liquidate the assets of a banking corporation. The statute, which we have already cited, so states. The facts as alleged here are quite unusual. The original charter had been issued to defendant as a banking corporation, but it had not been doing a banking business since June 23,1934, (nearly 10 years). The depositors are paid. All the creditors it owed as a banking corporation have been satisfied. There is no one here who is complaining of this voluntary liquidation. The auditor knew of it (or his predecessor did) and for practically 10 years had acquiesced in it. Every obligation that has arisen out of this defendant doing a banking business has been satisfied. It has a mere shell of a charter. Under quite similar circumstances in the case of M. R. Harris Estate v. West Grove Savings Bank, 207 Iowa 41, the Supreme Court of Iowa held that a statutory provision quite similar to that of our statute would not apply. We so hold here.

The judgments and orders appealed from will be reversed and the cause remanded with directions to reinstate the cause, the order of consolidation and to permit the filing of the amended and supplemental complaint.

Reversed and remanded with directions.

Niemeyer and O’Connor, JJ., concur.