Appeal from the Superior Court of Cook county; the Hon.
ABRAHAM A. MAROVITZ, Judge, presiding. Affirmed in part, reversed
in part and cause remanded with directions.
JUSTICE ROBSON DELIVERED THE OPINION OF THE COURT.
This is an appeal from an order dismissing an amended complaint in chancery. Plaintiffs sought to impress a trust on the proceeds from a sale of certain real estate. The cause was heard by a master who recommended the dismissal of plaintiffs' amended complaint for want of equity. The chancellor entered an order sustaining the master's report and dismissing the suit.
Robert B. Luebke filed a complaint, individually and as conservator of the estate of his sister, Louise, against another sister, Laura M. Browning, and the First National Bank of Lake Forest as trustee under two trusts known as Trust No. 471 and Trust No. 492 and as administrator of the estate of her father, Harry J. Luebke. The complaint sought an accounting of funds in the hands of the administrator based upon the following allegations: that on November 10, 1925, the father was appointed guardian of the estates of the three children; that the father used the guardianship money to acquire two lots of realty in Highland Park, Illinois; that the property was taken in the name of the Roger William Building Corporation, the capital stock of which was issued in the names of the father, his wife Ruth, and the three children; that the property was subsequently put in trust in January, 1944, with the First National Bank of Lake Forest as trustee; that upon the termination of a plan to purchase and redeem bonds outstanding against the property, the father received $27,000; that because of threats and duress by Laura a second trust was created at the same bank with monies belonging to the three children and designating the father, Ruth and Laura as the sole beneficiaries; that the father and Laura received substantial sums from the second trust; and that all of the monies received by the two trusts are the property and assets of the guardianship estate. The complaint concludes with a prayer for an accounting.
The answer of Laura M. Browning alleges that the amount received by Harry as guardian was only $46,252.74; that she has no knowledge sufficient to form a belief as to the creation of Trust No. 471; admits the creation of the second trust, and that it still exists, but denies any threats or duress; denies that the monies paid into the second trust were owing to the guardianship estate; denies knowledge of certain conveyances to the bank; and alleges the defense of laches and the statute of limitations.
On June 5, 1956, the master filed his report in which he found that plaintiffs did not prove that the guardianship funds had been traced into the acquisition of either lot forming the St. John Avenue property nor into the construction of the apartment building that was erected thereon. However, the master stated that with respect to another theory advanced by plaintiffs, his conclusion might be different. He stated that an inference might be drawn from Laura's testimony that the issuance of shares in the names of Robert and Louise constituted an acknowledgment and attempted satisfaction by Harry of his guardianship indebtedness. Plaintiffs were given leave to amend their complaint without prejudice to the rights of defendant Laura to utilize the allegations of the original complaint and without prejudice to the order of reference and hearing before the master in chancery.
The amended complaint reiterates the allegations of the initial complaint and alleges that Harry prepared a draft of the proposed final account as guardian for the minors in 1931 and then acknowledged to his attorney that the minors' money had been invested in purchasing the lots and in erecting the apartment building, and that he agreed to turn over and deliver the building to his children in payment of his indebtedness. It alleges further that he organized the Roger William Building Corporation to accomplish this end, that on March 22, 1931, a charter was issued, that the stock was issued as set forth in the master's report, and that all the stock was then placed in safekeeping for the respective holders with the attorney who had handled the organization of the corporation.
In her answer to the amended complaint Laura denied that Harry invested any of the minors' funds in any real estate, or specifically in the Roger William Building Corporation or in the St. John Avenue property, and that the corporation was insolvent on December 30, 1943, being encumbered with outstanding bonds, the face amount of which far exceeded the value of the property. The answer also alleged that Robert approved all of the transactions incident to the creation of the first trust (No. 471) by which the corporation was to be relieved of its outstanding indebtedness. The answer denied that any of the proceeds of that trust constituted any part of the minors' estate or that the corporation had any interest in the proceeds of the property constituting either Trust No. 471 or Trust No. 492. No additional testimony was taken after the filing of the amended complaint.
The master on the basis of the amended complaint and answer thereto filed a supplemental report. He found that the burden of proof was upon plaintiffs to show by a preponderance of the evidence that their father, Harry Luebke, had made a gift to his children of stock in the Roger William Building Corporation to satisfy his obligation to them arising out of the guardianship. He further found that plaintiffs had been guilty of laches in failing to assert their claims sooner.
The record reveals that in 1924 one Laura A. Laws, the aunt of these plaintiffs and defendant, died testate, bequeathing to them the residue of her estate. The plaintiffs and defendant were minors at that time. Their father, Harry Luebke, was named executor in the will and in November 1925 was appointed testamentary guardian of the three minor legatees by the Probate Court of Cook County. His total receipts as guardian aggregated $67,908.35. The minors' estate was never closed, nor was Harry discharged as guardian at any time prior to his death in 1951.
While acting as executor, and later guardian, Harry acquired two lots in Ravinia Station subdivision in Highland Park, Illinois. He and his wife, Ruth, placed a mortgage on these lots for $125,000. Then in 1928 and 1929, an apartment building was erected on the property at a cost of approximately $150,000. The building was incorporated in Illinois as the Roger William Building Corporation on March 22, 1931. The charter indicates that the sole assets of the corporation were the two lots. The total authorized capitalization was $150,000, represented by 1500 shares of common stock bearing a par value of $100 a share. Robert subscribed to 990 shares, Laura to 500, and Harry to 10.
On April 4, 1931, Laura directed that 100 of the shares representing her subscription be issued to her mother, Ruth. Robert directed that 200 of his shares also be issued to Ruth, and that 490 of them be issued to Harry as trustee for Louise. Harry directed that nine of the shares subscribed by him be issued to him as trustee for Louise. These directions were all made in writing. All the certificates were prepared in the office of an attorney and, with the exception of Laura's, all remained in his possession until 1943 or 1944. Laura accepted delivery of her certificates on October 2, 1934. She kept them until June 23, 1943, when she turned them over to her father.
Robert, Laura and Harry were elected directors of the corporation. The corporation remained so constituted until 1943. In that year certain bonds issued by the corporation were in default. Harry made arrangements with one Joseph C. Cormack whereby Cormack would use his capital to buy up the bonds in default at a reduced price, for which service Cormack would be reimbursed in full and receive a fee of $5000. On August 19, 1943, the corporation, Harry and Cormack entered into a written agreement to this effect, providing further that Harry would cause the shareholders of the corporation to deposit 52% of the capital stock of the corporation with Cormack as additional security for his advancements. The agreement was signed by Harry on behalf of the corporation, as president, and by Laura M. Browning, as secretary.
The record indicates further that on December 31, 1943, Robert, Harry and Ruth held a meeting of the board of directors of the corporation at which they acted on a proposal by Cormack to cancel $109,000 of the bonds against the property in return for a conveyance to him of the property. The directors approved Cormack's proposal and voted that it be submitted to the shareholders at a special meeting to be held January 3, 1944. A meeting was held on waiver of notice, signed by Harry as the owner of 50 shares and by Ruth as the owner of 1450 shares. The record does not reveal at what point Ruth became a director or how 1450 shares stood in her name and 50 in Harry's. The stock transfer book contains the same allocations of stock to which the various parties agreed in 1931.
The property was conveyed to Cormack on January 13, 1944. Two days later Cormack and his wife conveyed the same to the First National Bank of Lake Forest under Trust No. 471. The trust agreement provided that the trustee would hold the property, first, for the use of Joseph C. Cormack, as a preferred beneficiary to the extent of the sums due him until such sums were paid, and thereafter, for Harry J. Luebke and Ruth B. Luebke. A new mortgage was made by the trustee for $60,000, the proceeds of which were paid to Cormack by the trustee. The property was sold to one Harry S. Adler in March, 1944, for a total purchase price of $108,000. After payment of the $60,000 mortgage, the net proceeds amounted to $44,033.79. Cormack was paid the balance ...