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Callahan v. Holsman

OPINION FILED MAY 12, 1953

P.J. CALLAHAN ET AL., APPELLEES,

v.

HENRY K. HOLSMAN ET AL., DEFENDANTS. ON APPEAL OF SAMUEL L. ROSENBLATT AND JOSEPH G. ENGERT, APPELLANTS.



Interlocutory appeal from the Circuit Court of Cook county; the Hon. DANIEL A. ROBERTS, Judge, presiding. Heard in the second division of this court for the first district. Order reversed and cause remanded with directions. Opinion filed May 12, 1953. Rehearing denied June 2, 1953. Released for publication August 4, 1953.

MR. JUSTICE SCHWARTZ DELIVERED THE OPINION OF THE COURT.

Rehearing denied June 2, 1953

The complaint in this case charged that certain defendants, other than appellants, promoted and created what is called a "Mutual Development Trust"; that they sold beneficial interests therein to plaintiffs and others, and thereafter fraudulently caused to be executed a second mortgage trust deed on the trust property, to secure a note for $80,000 issued to themselves, and sold and transferred the same to defendants Samuel L. Rosenblatt and Joseph G. Engert, hereinafter referred to as appellants. The only charge against appellants is that they knew "that the execution of the purported second mortgage trust deed and the notes secured thereby was ordered by the defendants [other than appellants] in fiduciary capacities and were chargeable with notice that the said actions were a violation of fiduciary duties on the part of said defendants."

Upon this complaint and upon notice, but with no opportunity to argue the same, a temporary injunction was issued which restrained appellants from "taking action to foreclose the second mortgage trust deed . . . or from instituting legal proceedings to secure payment of the notes secured thereby or transferring or in any way disposing of said second mortgage trust deed or the notes secured thereby." A motion to dissolve made by appellants was denied and an appeal was taken from the order granting the injunction and from the order denying the motion to dissolve the same.

The first question presented for decision is a technical one, that is, whether the verification to the complaint upon which the injunction order was issued is correctly worded. The verification, by one of the plaintiffs, contains the usual language — that he is acquainted with the facts stated in the complaint and that the same are true, followed by this qualification, "except for such facts as are stated on information and belief and that as to these he verily believes them to be true." It is the argument of appellants, supported by considerable authority, that failure to include the words "to be" after the word "stated" makes the affidavit inadequate. The argument is that inasmuch as the exception is not confined to those facts which are in the complaint stated to be on information and belief, it may cover all the averments of the complaint, and only by searching the mind of the pleader can we know which facts he knew firsthand. Cases cited by appellants are Palmer Grill, Inc. v. Nory, 268 Ill. App. 292, 293; Grabowski v. MacLaskey, 257 Ill. App. 484, 487; and Hulse v. Nash, 332 Ill. 500, 506. The language in the two Appellate Court cases cited sustains appellants' position, and there are other cases to the same effect. In neither case did the complaint contain any allegations on information and belief. In Hulse v. Nash, 332 Ill. 500, the Supreme Court had before it a verification, the wording of which was slightly different from the verification in this case. The complaint related to an election contest, and the exception in the affidavit read as follows: "except as to those matters set forth upon information and belief." The court held that this affidavit was sufficient. It appears to us that it is subject to the same objection as the affidavit in the instant case. There may be some distinction between the words "set forth" and the word "stated," but it is difficult to see that it is anything more than a distinction without a difference. If the Supreme Court had adhered to the true meaning of the previous decisions then, to be correct, the verification in Hulse v. Nash should have read "except as to those matters which are set forth in the complaint as being on information and belief." In our opinion, Hulse v. Nash, supra, clearly indicates the departure of the Supreme Court of this State from adherence to this highly technical principle. From a reading of the cases which have laid down the principle and from practical knowledge of the situation, it is our opinion that the rule is a snare and a pitfall for the unwary member of the profession. Our decisions should not turn on such points. MR. JUSTICE BRISTOW in Karlock v. New York Cent. R. Co., 333 Ill. App. 655, quotes MR. JUSTICE CARDOZO as follows:

"The law has outgrown its primitive state of formalism when the precise word was the sovereign talisman, and every slip was fatal. It takes a broader view today."

Applications for temporary injunctions are matters of urgency, and complaints are prepared under pressure. While the complaint and the verification attached to it should clearly show the right to the remedy, some discretion should be allowed to the chancellor and the reviewing court in determining the intent of the affidavit. If, as here, the complaint contains some averments set forth as being on information and belief, then an affidavit which avers that all matters stated in the complaint are true "except for such facts as are stated on information and belief," should be construed as referring to such matters as are in the complaint stated to be on information and belief. The reason for the hairsplitting doctrine — and a hair-raising one for practicing lawyers — is that a criminal proceeding for perjury could not be predicated on the averment. However, it is well known that perjury is proceeded against only under the most extraordinary circumstances. No member of this court has ever heard of a perjury proceeding based upon an affidavit to a civil complaint of the kind here involved. If a criminal proceeding should be warranted in a case of this character, it is doubtful that a successful defense could be predicated on such a technical interpretation of the language in question. It is far more probable that injustice has been and will be done by adherence to a technical requirement of this character.

It has been urged upon us that we should not depart from the long and respectable line of authorities now supporting the doctrine. However, we think the Supreme Court departed from it in Hulse v. Nash, supra. Moreover, this is a court of last resort with respect to appeals from temporary injunctions, and it is in appeals from such orders that this question most often arises and that injustice by adherence to the doctrine can most often be inflicted. There is no way in which the question can be presented to the Supreme Court on such appeals, and it may be years before the matter may come to that court in some other proceeding.

In addition to this technical point, appellants urge that the complaint does not state a prima facie case entitling plaintiffs to injunctive relief against them. It is essential that a complaint should make a prima facie case for final relief by alleging facts which, if proved and not controverted, will entitle complainant to the relief prayed for. Malnick v. Rosenthal, 313 Ill. App. 249; Peoples Gas Light & Coke Co. v. Cook Lumber Terminal Co., 256 Ill. App. 357. The principal relief prayed for in the complaint is an accounting from the managing trustees and for their removal as such managers. Appellants are the owners of the junior note and mortgage above referred to, conveying real estate owned by the trust. The complaint is twelve pages long and contains twenty-three paragraphs of allegations. In only two paragraphs are appellants referred to. The first, which is on information and belief, alleges that the note and trust deed were delivered to Newton C. Farr and then transferred to defendants Rosenblatt and Engert. The second alleges that Farr and appellants knew that the execution of the second mortgage trust deed and the notes secured thereby was ordered by the managing trustees and was done by The Trust Company of Chicago in a fiduciary capacity, and that Farr and appellants were chargeable with notice that the actions were a violation of fiduciary duties on the part of the managers. There is no allegation which states or infers that appellants participated in any alleged violation of fiduciary duties or in any of the alleged fraudulent actions of the managers, or that they had any knowledge of any alleged misconduct of the Trust Managers or trustee.

The Fiduciary Obligations Act, ch. 98, par. 235, Ill. Rev. Stat. (1951) [Jones Ill. Stats. Ann. 135.07] provides as follows:

"A person who in good faith pays or transfers to a fiduciary any money or other property which the fiduciary as such is authorized to receive, is not responsible for the proper application thereof by the fiduciary; and any right or title acquired from the fiduciary in consideration of such payment or transfer is not invalid in consequence of a mis-application by the fiduciary."

This court in National Casualty Co. v. Caswell & Co., 317 Ill. App. 66 (where defendant purchased a certificate of deposit from a trustee who appropriated the money to his own use) held that under the Fiduciary Obligations Act a purchaser from a trustee who has the power to sell is not required to make any inquiry as to the use to which the trustee intends to put the money from the sale, but may safely assume that it will be applied as trust property, and at p. 72 said:

"In Scott on Trusts, Vol. 2, Sec. 297.6, it is said that one is not chargeable with notice of a breach of trust unless he has actual knowledge of the breach or knowledge of such fact as amounts to bad faith in purchasing the property from the trustee. The author says, `It would seem that the mere fact that the transferee is negligent in failing to learn of the breach of trust is not enough to charge him with notice unless he acts in bad faith.' The complaint does not ...


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