Barrett v. Shanks

• Decision Date: 16 March 1943
• Docket Number: No. 26767.,26767.
• Citation: 382 Ill. 434,47 N.E.2d 481
• Parties: BARRETT v. SHANKS.
• Court: Illinois Supreme Court

382 Ill. 434

47 N.E.2d 481

BARRETT

v.SHANKS.

No. 26767.

Supreme Court of Illinois.

March 16, 1943.

Appeal from Appellate Court for the First District, Third Division, on Appeal from Superior Court, Cook County; John F. Haas, Judge.

Assumpsit by the Madison & Kedzie Trust and Savings Bank against Mark Shanks to recover on a guaranty. Lawrence A. Barrett as successor liquidating trustee for bank was substituted as a plaintiff, and while cause was pending in appellate court, Alice E. Shanks as administratrix of the estate of Mark Shanks, deceased, was substituted as a defendant. From a judgment of the appellate court, 313 Ill.App. 598, 40 N.E.2d 590, reversing and remanding a judgment on a directed verdict for defendant, administratrix appeals by permission.

Judgment of appellate court affirmed.Gustav E. Beerly, of Chicago (John F. Diffenderffer, Jr. and Gustav E. Beerly, Jr., both of Chicago, of counsel), for appellant.

Matthias Concannon and R. F. Bostelman, both of Chicago, for appellee.

MURPHY, Justice.

A petition for leave to appeal from the Appellate Court was allowed in this case in order that a judgment of the superior court of Cook county which was reversed by the Appellate Court might be further reviewed.

On April 11, 1927, the Midwest Athletic Club borrowed $75,000 from the Madison & Kedzie State Bank due in ninety days. On the same day, Mark Shanks and twenty-four others signed and delivered to the bank their contract of guaranty as collateral to the indebtedness owed by the club. The obligation of each guarantor was several and limited to $5,000. The club owned accounts receivable of $135,000 which were unpaid membership dues. Contemporaneously with the execution of the note, the athletic club executed an assignment of said accounts to the bank as collateral to its note.

Later the bank transferred its assets to the Madison-Kedzie Trust & Savings Bank and in 1930 the latter bank started this action against Shanks on the contract of guaranty. During the pendency of the litigation a liquidating trustee was appointed for the Trust & Savings Bank. He now appears as plaintiff. Shanks died while the case was pending in the Appellate Court and the administratrix of his estate was substituted as defendant. Shanks will be referred to as defendant.

The suit having been started prior to the effective date of the Civil Practice Act, the pleadings are in conformity to the prior practice. Defendant pleaded the general issue and gave notice of certain special defenses, viz: (1) That the defendant's signature to the guaranty was procured through fraud and circumvention in that it was falsely and fraudulently represented to the defendant (a) that the assets of the Midwest Athletic Club exceeded its liabilities by more than $500,000; (b) that the liabilities of the club, exclusive of its building obligations, did not exceed $25,000; (c) that the guarantors on a principal guaranty of $250,000 given to Forman & Company had been released; (d) that the club had not borrowed any money for which it had pledged its accounts receivable due from memberships; (e) that sales of memberships had been made for an amount in excess of $500,000 and (2) that the guaranty contract and the contract of assignment were both executed at the same time and contemporaneously with the execution of the note, that the contracts were given as collateral to the note and that the bank received the security and property from the athletic club as an indemnity and did collect and receive under such pledge a sum sufficient to discharge the whole of the indebtedness; that the bank did not exercise proper care and diligence in the management and collection of the collateral, and by reason thereof defendant had suffered damage in excess of the amount claimed.

Prior to the present trial the cause was taken to the Appellate Court where a summary judgment was reversed and cause remanded on the ground that the pleadings presented controverted questions of fact. 300 Ill.App. 119, 20 N.E.2d 799.

In 1939 a second trial was had and at the conclusion of all the evidence both parties moved for directed verdicts. Plaintiff's motion was overruled but defendant's was allowed and after a formal verdict was returned for the defendant, the court overruled plaintiff's motion for judgment non obstante veredicto and for a new trial. Judgment was entered in bar of plaintiff's action and for costs. Plaintiff appealed from such judgment to the Appellate Court.

On November 20, 1940, the Appellate Court reversed and remanded the cause with directions that the issues of fact be submitted to a jury. Plaintiff's petition for rehearing was allowed. After further consideration the Appellate Court on June 25, 1941, filed a short opinion adhering to the conclusions reached in the previous opinion. A judgment was again entered reversing and remanding the cause with directions to submit the evidence to a jury. Plaintiff filed a second petition for rehearing which was allowed September 26, 1941. On March 19, 1942, the third opinion was filed, the result of which was to reverse the judgment and remand the cause with directions to enter judgment for the plaintiff for $4265.98. The opinion disposes of the fraud by stating ‘There is no evidence of fraud in the record. Plaintiff apparently abandoned this issue at the trial.’ 313 Ill.App. 598, 40 N.E.2d 590, 594. A petition of defendant's administratrix for rehearing was denied.

The principal grounds relied upon for reversal are: (1) that there was evidence of fraud necessitating submission of the cause to a jury and that the order of the Appellate Court directing the entry of a judgment for the plaintiff deprived defendant of the constitutional right to a trial by jury, (2) that the contract of guaranty and the assignment contract should be construed together and that when so construed the meaning and intention of the parties are so indefinite and uncertain as to require extrinsic evidence to explain, and that when construed in the light of such evidence the law imposes the burden on the bank to collect the accounts pledged by the assignment and to apply the proceeds of such accounts to the indebtedness, and that since the bank failed in that regard the guaranty contract is discharged and cannot be enforced against the defendant, and (3) that the Appellate Court erred in entertaining and allowing plaintiff's second petition for rehearing.

In the early part of the year 1927, the athletic club, which had been organized in 1924, was constructing a club building. A part of the plan for financing the costs included the application of the proceeds of a bond issue secured by trust deed on the club property and the proceeds of sales of memberships in the club. Defendant was a member of the club and at the time of the execution of the note and guaranty contract was a director and vice-president. Alfred H. Smith was treasurer of the club and was also president of the Madison & Kedzie State Bank. On April 11, 1927, immediately prior to the execution of the guaranty contract, Smith submitted a financial statement of the condition of the club to those who signed the guaranty contract, including defendant, and such statement furnishes the basis for defendant's claim that fraud was perpetrated upon him.

The statement purports to show ‘in round figures' the financial condition, as of April 11, 1927, the amount required to complete the building and the availability of funds. The land, valued at $275,000 and fully paid for, was not included as an asset in the report. The construction and other costs are fixed at $1,715,000 of which there was expended to date $665,000, leaving $1,050,000 as the amount required to complete the building. Listed as available assets and to be raised was cash $690,000, accounts receivable (membership fees) $135,000, less $25,000 pledged to secure a loan, for a total of $800,000. The report contained the following entries which are unexplained in the evidence: ‘guaranty (balance) $175,000, 2nd mtge bonds to be taken by contractors $150,000,’ total available $1,125,000. ‘Unsubscribed balance only $50,000, excess as stated $75,000.’ It contained the following statement: ‘Against this there are bank loans not secured by Receivable accounts of Membership Fees, but by 2nd Mtge bonds or an excess of $25,000. This, however, is before providing for equipment and furniture, which will approximate $250,000.’ The remainder of the report was devoted to entries which are, as to the greater part, a mere prospectus of what Smith hoped would be realized from membership fees and other sources within the ensuing year and are not included in a way to balance any other items of the report.

Smith, as treasurer of the athletic club, submitted to the members two other financial reports, one of May 31, 1927, the other of September 30 of the same year. Defendant's administratrix argues that comparison of the report of April 11 with the other two establishes the falsity of some of the entries in the April report. She says that such comparison shows the assets of the club were not more...