Appeal from the Circuit Court of Cook county; the Hon.
CORNELIUS J. HARRINGTON, Judge, presiding. Decree affirmed.
MR. PRESIDING JUSTICE MCCORMICK DELIVERED THE OPINION OF THE COURT.
Rehearing denied March 28, 1955.
A decree was rendered in the circuit court of Cook county on an amended intervening petition filed by William Lorimer and others on January 12, 1932. The suit in which the intervening petition was filed was started June 18, 1914 to wind up the affairs of the La Salle Street Trust and Savings Bank, an Illinois corporation. Certain objections had been filed to various reports and accounts submitted by the Chicago Title and Trust Company, successor receiver of the La Salle Street Trust and Savings Bank, which accounts were filed on March 16, 1932, April 18, 1940 and on April 21, 1943, and these objections were substantially the same as those alleged in the petition. These objections were included in the order of referral to the master and were considered in the hearing. The trial court entered a decree dismissing the amended intervening petition for want of equity, approving and confirming all the accounts theretofore filed by the Chicago Title and Trust Company as receiver of the La Salle Street Trust and Savings Bank, and overruling all objections thereto. The decree further provided that the respondent, Chicago Title and Trust Company, be released and discharged from all further duties and liabilities on account of the said receivership. From this decree appeal is taken on the theory that the intervening petition and the objections to the accounts and reports were to recover assets of a receivership estate which allegedly wrongfully came into the possession of the respondent and were not accounted for by it, and to recover the legal profits which the respondent received while acting in a fiduciary capacity towards the receivership estate, together with interest thereon; that the master and the chancellor incorrectly interpreted the law applicable, and that under a proper application of the law the facts established were sufficient to sustain the petition.
The abstract filed in this case consists of 323 printed pages. An additional abstract was filed consisting of 244 pages. The record contains 7,321 pages. The essential facts contained in this voluminous record are as follows: The La Salle Street National Bank was organized on or about May 9, 1910, and carried on a general banking business in Chicago from that time until about October 21, 1912, when it ceased doing business. On October 19, 1912 the La Salle Street Trust and Savings Bank, an Illinois corporation, was organized and succeeded the National Bank. During the entire time, William Lorimer was president, Charles B. Munday vice-president, and they, together with Harry W. Huttig, were members of the board of directors, both of the National and State Banks.
The Rosehill Cemetery Company is a corporation organized under a special act of the General Assembly of the State of Illinois approved February 11, 1859. The capital stock of the cemetery company, as fixed by its charter, was $500,000, divided into 5,000 shares of the par value of $100 each. The Rosehill Cemetery Company acquired about 325 acres of land in the Town of Lake View in Chicago, which it used and is using for cemetery purposes, together with other property incidental thereto.
The Rosehill Cemetery Company, when it sold burial lots, had for many years collected an additional sum over and above the selling price of the lots, which money it agreed to hold in trust forever as a Perpetual Care Fund. By the spring of 1912 that fund had reached substantial proportions and was invested in numerous high-grade securities.
In 1912 Rosehill had 5,000 shares outstanding. Of these, 2.668 1/3 were owned by the three heirs of Killian Lansingh (Grace Wiles, Van Rennsalaer Lansingh and Blanche Freeman), and 447 1/2 were owned by Pettibone, Osborne and Minor. The remaining shares of the 5,000 were owned by Wesley Dempster, A.W. Vercoe and others, hereafter referred to as the Dempsters.
On May 20, 1912, by a contract dated April 1, 1912, Munday and Huttig, associated with Joseph Morris, Frederick Reynolds and Jess Briegel, contracted to purchase from Pettibone, Osborne and Minor 447 1/2 shares of Rosehill stock for $300 per share, and on May 20, 1912, by a further contract (hereafter referred to as the Lansingh contract), which was dated April 1, 1912, Munday and Huttig and their associates agreed to buy 2,668 1/3 shares of Rosehill stock from Lansingh, Wiles and Freeman at an agreed price of $325 a share, or a total of $867,208.33, payable over a period of ten years. The buyers made a downpayment in cash of $96,208.33 and agreed to pay the remaining balance of $771,000 in installments, $20,000 to be paid on October 1, 1912, $25,000 semiannually during the years of 1913, 1914, 1915 and 1916, and $50,000 semiannually during the years of 1917, 1918, 1919, 1920 and 1921, with a final payment of $51,000 in 1922, with interest at 5 per cent per annum on the deferred payments.
Under the terms of the contract the Chicago Title and Trust Company, as trustee, held possession of the stock until the purchase price was fully paid, but the buyers could withdraw up to 167 shares as they made the payments. This would at all times leave 2,501 1/3 shares, or a majority of all the Rosehill shares, in the hands of the trustee, which shares, however, could be voted by the buyers on proxies issued by the trustee. The contract further provided that in the case of default in the payment of the principal or interest, or in the performance of any of the covenants, the trustee, on the written request of the sellers, could declare the full amount of all the notes then outstanding to be immediately due and payable.
By the purchase of the said stock Munday and his associates secured control of Rosehill Cemetery Company, and they shortly after April 1, 1912 formed a new corporation known as Cemetery Securities Company. Under the Lansingh contract Munday and his associates were entitled to withdraw one share from the trust for every $325 paid in excess of the sum of $150,000. On April 1, 1914, under the terms of the contract, they had paid $191,208.33 and therefore were entitled to, and did receive, shares representing the difference between that sum and $150,000, or 126 shares. They assigned the 447 1/2 shares purchased from Pettibone, Osborne and Minor, together with their rights to the 2,668 1/3 shares purchased under the Lansingh contract, of which 126 shares had actually been delivered to them, to the Cemetery Securities Company in payment for the stock in that corporation. The Cemetery Securities Company therefore held 573 1/2 shares of Rosehill company stock, with the right to secure the balance of the stock sold under the Lansingh contract.
The Cemetery Securities Company then made loans from the La Salle Street Trust and Savings Bank (hereafter called the State Bank), which at the time of the closing of the bank amounted to the sum of $106,000, evidenced by its note and secured by 352 1/2 shares of Rosehill stock. From April 1912 to 1914, Munday and his associates, while in control of the Cemetery Securities Company and the Rosehill Cemetery Company, transferred 219 shares of Rosehill stock, along with certain worthless securities, to the Rosehill Cemetery Company, and received in return therefor good securities out of the Perpetual Care Fund of the Rosehill company, and certain cash which was paid to Munday and Huttig. The remaining two shares of Rosehill stock held by the Cemetery Securities Company were transferred to one Thomas Wallis.
On May 22, 1914, a minority stockholders' suit was filed by Wesley Dempster, on behalf of the stockholders of Rosehill, in the superior court of Cook county, case no. 308793, against the State Bank and against Munday and his associates, charging the wrongful depletion of the Rosehill Perpetual Care Fund and the wrongful using of such money to make payments for the Rosehill shares purchased by Munday and his associates from Pettibone, Osborne and Minor, and from the Lansinghs, and praying for an accounting and return of the money and securities taken from the Perpetual Care Fund. As a result of this suit the auditor of the State of Illinois closed the State Bank on June 12, 1914, and on June 18, 1914 filed this suit, being circuit court no. B-3379. On June 19, 1914 William C. Niblack was appointed receiver of the State Bank, and a creditors' committee was formed on behalf of the creditors. At the time of his appointment as receiver for the State Bank and down to the time of his death on May 6, 1920, Niblack held the office of vice-president, director and trust officer of Chicago Title and Trust Company, the respondent herein.
At the time the State Bank went into receivership it held 352 1/2 shares of Rosehill stock, as collateral for notes of the Cemetery Securities Company, and Thomas Wallis held two shares to qualify as one of the directors of the Rosehill company. The balance of 2,542 1/3 shares left after the withdrawal by Munday and his associates of 126 shares from the original 2,668 1/3 shares sold under the Lansingh contract was held by Chicago Title and Trust Company, as trustee of that contract.
In the afore-mentioned case filed by Wesley Dempster on behalf of the stockholders of Rosehill, Niblack, as receiver of the State Bank, was made a party defendant, and the Chicago Title and Trust Company was appointed receiver of Rosehill Cemetery Company on November 25, 1914, and among other assets succeeded to the 219 shares of Rosehill stock held by Rosehill as security for the note of Cemetery Securities Company, and also became custodian, as such receiver, of the Perpetual Care Fund.
On December 28, 1914, Niblack, as receiver of the State Bank, filed suit in the circuit court of Cook county, being case no. 7504, against Munday, Huttig and others, claiming that as receiver he was then the beneficial owner of the shares of Rosehill stock procured by Munday and Huttig and the beneficial owner of the Lansingh contract, and claiming further that the payments made by Munday and his associates under that contract had been financed by money obtained by pretended loans from the National and State Banks, and that for that reason there was a resulting trust in favor of the National Bank, to which the State Bank succeeded, as assignee. He prayed that he might be declared the beneficial owner of the Lansingh contract, subject to the rights of Rosehill and others, and subject further to the payments required to be made to the said Van Rennsalaer Lansingh, Grace R. Wiles and Blanche L. Freeman under and in pursuance of the collateral trust agreements. To effectuate this claim it was necessary that Niblack keep up the payments under the contract. With that in view, Niblack in January of 1915, after notice to all the interested parties, including attorneys Rice, Lowes & O'Neil (Lowes being one of the attorneys for the intervening petitioners in this cause), filed a petition in the circuit court, before Judge Windes, in which he set forth his claim that the State Bank was the beneficial owner of the Lansingh contract, stating that he was uncertain as to the value of the Rosehill stock sold under that contract, and that he was uncertain as to the advisability of the use of the funds in his hands as receiver in purchasing said stock. Judge Windes, on January 30, 1915, entered an order finding that it would not be advisable for the receiver to use any such monies in his hands as such receiver for the purpose of making payments under the Lansingh contract. No further proceedings were taken in Niblack's suit against Munday, and on February 25, 1918 the same was dismissed by stipulation.
Niblack, as receiver, also filed a claim in the Munday bankrupt estate in the District Court of the United States on behalf of the State Bank in the sum of $461,001.24, and on March 27, 1915 filed a petition in the circuit court of Cook county in the instant case asking for authority, as receiver, to execute an acceptance of an offer of composition made by Charles B. Munday and J. Guy Munday, individually and as co-partners under the firm name of C.B. Munday & Company, all of whom, both firm and individuals, had been adjudicated bankrupt. Judge Windes found that it was to the best interests of the creditors and stockholders of the State Bank that the proposed composition be accepted by the receiver, and thereupon ordered the receiver to execute an acceptance of the same.
The Dempsters, on November 15, 1915, secured a loan from the Chicago Title and Trust Company in the sum of $950,000. On November 17, 1915, Niblack, in this case, petitioned the court for leave to sell the 352 1/2 shares of Rosehill stock held by him as receiver, to Edwin M. Ashcraft, who was attorney for the Dempster group, representing to the court that a fair price per share of said stock was $300. Pursuant to an order granting leave to sell, Niblack sold the shares for $105,750, or approximately $300 per share. The Dempster group then abandoned its claim against the State Bank based on the alleged participation of the State Bank in the wrongful handling of the securities taken out of the Perpetual Care Fund of the cemetery company, a liability which it was represented to the court by the attorney for the receiver might amount to upwards of $100,000.
On November 30, 1915, a decree was entered in the minority stockholders' suit, pursuant to the terms of which the Dempster group paid in cash to the Chicago Title and Trust Company, as receiver of Rosehill, the sum of $65,700, or $300 per share, and received 219 shares of Rosehill stock and the note of the Cemetery Securities Company, secured by such shares theretofore held by Rosehill. Provision was also made by the decree for the rehabilitation of the Perpetual Care Fund, and the Dempsters agreed to purchase from the fund, at their par and face value of $131,575.86, some of the doubtful or worthless securities placed in the fund by Munday and his associates. The decree provided that said purchase price should be paid by having Rosehill pay one-half of all dividends on all of its stock to the Chicago Title and Trust Company, as custodian of the Perpetual Care Fund, until the full amount had been paid.
In the meantime, the payments due the sellers under the Lansingh contract in December 1914 had been paid by one William S. Freeman, assignee of the Lansingh contract from Munday, Huttig et al., and Cemetery Securities Company and Freeman also subsequently paid principal and overdue interest to keep the contract alive until October 25, 1915. Freeman assigned his interest in the Lansingh contract, thus obtained, to the Dempster group, who also acquired the two shares owned by Thomas Wallis, for the sum of $715, which was the highest price paid by anyone interested in the Rosehill shares. The balance due the sellers under the Lansingh contract was paid off in full. The Dempster group thereupon wound up owning all the stock in the Rosehill Cemetery Company but owing the Chicago Title and Trust Company the sum of $950,000 on their loan. As security for such loan, the Dempster group deposited with the Chicago Title and Trust Company 4,500 shares of the Rosehill cemetery stock.
Niblack died on May 6, 1920, and on May 10, 1920 the Chicago Title and Trust Company was appointed successor receiver of the State Bank in his stead. A final report and account of Niblack's actions as receiver was filed by his executors. On December 15, 1920 an order was entered by the court which, after reciting that it had examined Niblack's final report and account and that the same had been examined and approved by the creditors' committee of the State Bank, approved the final report and account and discharged the estate of Niblack and the sureties on his bond.
On November 21, 1924 Chicago Title and Trust Company filed its final report as receiver for the State Bank. No asset or claim in connection with the Lansingh contract was listed therein. An order was entered by the court, on that day, requiring that all objections to such final report be filed with the court on or before December 2, 1924, and further requiring the publication of notice of the filing of said report and of the right to file objections to it by the time specified, and also that a copy of the order be given to the chairman of the creditors' committee. Notification was required to be given to the creditors' committee of any such objections. No objections were made to the final report and on December 17, 1924 the final report was approved by an order which, after reciting that the said notices had been given, provided that upon distribution of the balance of the funds then in its hands, pro rata to the creditors, and after deduction of certain fees, the receiver should be discharged, except that the receivership was to continue for the purpose of prosecuting certain litigation against the O'Gara Coal Company.
On January 12, 1932 leave was granted William Lorimer to file his intervening petition in this proceeding On the death of Lorimer, the joint and several petition of William Lorimer, Jr., administrator of the estate of William Lorimer, deceased, and Thomas McDonald, as stockholders of the La Salle Street Trust and Savings Bank, and Louis H. Pink, Superintendent of Insurance of the State of New York, as liquidator of the National Surety Company, and the Maryland Casualty Company, and the Massachusetts Bonding and Insurance Company, individually and as assignee of the Aetna Casualty Company, creditors of the State Bank, was filed on August 9, 1940. The petition is quite voluminous and consists of various allegations of fact and propositions of law. The essential core of the petitioners' complaint is that Munday and his associates wrongfully obtained money from the National Bank and the State Bank while in control of those banks, and contracted to purchase 3,115 5/6 shares of Rosehill Cemetery Company stock; that the State Bank, in its own right, and as assignee of the National Bank, thereby was entitled to have a trust declared in said stock, and that any subsequent takers of the stock took with notice of the bank's rights; that Niblack, as receiver for the State Bank, was an officer and director of the Chicago Title and Trust Company; that he received a salary from the Chicago Title and Trust company and turned in his receivership fees to the company, and that he was, in effect, an employee of the Chicago Title and Trust Company; that upon the death of Niblack, the Chicago Title and Trust Company became receiver for the State Bank, and used the monies which came to its hands as receiver in its own business, and also used the money which Niblack acquired as receiver, in its business; that the various sales of Rosehill shares, made by Niblack as receiver for the State Bank, and by the Chicago Title and Trust Company as receiver for Rosehill Cemetery Company, were made for a price much less than the value of the shares which, on November 15, 1915, it was alleged was $2,000 each; that the dividends from the shares sold under the Lansingh contract would have been sufficient to pay the remaining installments of principal and interest due thereunder, and that the Dempster group and the Chicago Title and Trust Company should be decreed to hold in trust for the State Bank the shares sold under the Lansingh contract. The petition then prayed that an accounting be had of all dividends received on said 3,115 5/6 shares after November 15, 1915; that the State Bank be declared the beneficial owner of all 3,115 5/6 shares; and that the Chicago Title and Trust Company be removed as receiver for the State Bank.
An answer was filed by the respondent, Chicago Title and Trust Company, contesting the intervening petition and raising the defenses of laches and the running of the statute of limitations.
The basic issues raised by the intervening petition and the answer thereto are whether Munday and his associates on or about April 1, 1912, while directors and officers of the National Bank and while acting in a fiduciary capacity, wrongfully received money from that bank in the form of a loan and used such money for the purchase of 447 1/2 shares of Rosehill stock from Pettibone, Osborne and Minor for the sum of $134,250, and for the purchase of 2,668 1/3 shares of Rosehill stock under the Lansingh contract, whereby the National Bank assertedly became entitled to have a trust declared in its favor in said shares, to which right the State Bank succeeded; and whether Niblack, as receiver for the State Bank, in concert with the Chicago Title and Trust Company, perpetrated a fraud on the State Bank, its shareholders and creditors in that Niblack was merely an employee of the Chicago Title and Trust Company while ...