Haas v. Sternbach

• Decision Date: 29 October 1894
• Citation: 41 N.E. 51,156 Ill. 44
• Parties: HAAS et al. v. STERNBACH et al. SPIEGELBERG v. SAME.
• Court: Illinois Supreme Court

156 Ill. 44

41 N.E. 51

HAAS et al.

v.STERNBACH et al.

SPIEGELBERG

v.SAME.¹

Supreme Court of Illinois.

Oct. 29, 1894.

Appeal from appellate court, First district.

Bill by Charles Sternbach against Henry Leopold and others. Defendants obtained a decree, which was reversed by the appellate court. 50 Ill. App. 476. Defendants appeal. Affirmed.

J. E. Munroe, Cratty Bros., and Jarvis & Cleveland, for appellants.

S. H. Wright and Isham, Lincoln & Beale, for appellees.

WILKIN, C. J.

This litigation arose upon a bill to foreclose a real-estate mortgage, filed by appellees against appellants and others, in the circuit court of Cook county. The controversy between the parties to this record is as to which is entitled to the prior lien upon the premises described in the mortgage sought to be foreclosed. The facts material to a determination of that question are substantially as follows: On and prior to the 8th of February, 1890, Leopold Bros. & Co. were engaged in the business of manufacturing and selling clothing in the city of Chicago. For many years, Herman Sternbach & Co., of New York, carried on a business of importing and selling goods, and the two firms had had large dealings with each other. Some months prior to the date named, M. L. Leopold, a member of the Chicago firm, residing in New York, and managing the business of his firm in that city, and who was on intimate and friendly terms with Charles Sternbach, the managing member of Herman Sternbach & Co., died, and thereupon Henry Leopold, the senior member of Leopold Bros. & Co., applied to Charles Sternbach for financial aid for his firm by way of loans and advancements of money. The result of that application and subsequent negotiations was that on said 8th of February, Henry Leopold and wife executed and elivered to Charles Sternbach the mortgage in suit to secure the payment of $60,000, then and thereafter to be loaned and procured by the firm of Herman Sternbach & Co. to and for the firm of Leopold Bros. & Co. The mortgage conveyed a certain lot 4 and a certain block 7 in the city of Chicago. At the time of its execution there was an understanding between the parties (the evidence of which will be noticed later) that this mortgage should not then be placed upon record, and it was not recorded until the 5th day of November, 1890. In the meantime the mortgagors, Henry Leopold and wife, conveyed the same lot and block as follows, viz.: Lot 4, by trust deed, to Francis B. Peabody, October 28, 1890, recorded the next day, to secure a debt of $15,000. The undivided onefourth of block 7, by quitclaim deed, to Lehman Spiegelberg, October 30, 1890, recorded the same day. (These two conveyances are not in question.) Lot 4, by mortgage to Samuel Cole, to secure a debt of $13,000. The same to Isaac Haas, to secure a debt of $10,000. The undivided three-fourths of block 7, by mortgage to Lehman Spiegelberg to secure a debt of $4,500. The same by mortgage to Carrie B. Leopold, to secure a debt of $7,000. The same by mortgage to Herman Sternbach & Co., to secure a debt of $35,000. These mortgages were made October 29, 1890, and all recorded on the 30th, except the first, which was recorded the 31st. All interest in block 7, by quitclaim deed, to Lehman Spiegelberg, November 1, 1890, recorded on the 3d. On the 31st of October, 1890, the firm of Leopold Bros. & Co. confessed judgment in the superior court of Cook county, as follows, viz.: In favor of Emma Leopold for $15,000, of William Goodheart for $6,500, of Louis Mayer for $20,000, of Lehman Spiegelberg for $15,188.50, of Carrie Spiegeberg for $10,150, of the firm of Gitterman & Wedeles for $7,000, of Gustave Hartstein for $2,150, and of Louis Pappe for $10,000. In the month of October, 1890, the firm of Leopold Bros. & Co. proved to be hopelessly insolvent, and in view of that fact Henry Leopold consulted with D. K. Tenney, of the law firm of Tenney, Church & Coffeen, the result being the execution of the mortgages and the confession of the judgments above set forth. The purpose of giving those liens, Mr. Tenney's connections therewith, and his knowledge at the time of the existence of the $60,000 mortgage, is shown by the following communications sent out by the firm: ‘Chicago, October 29th, 1890. Herman Sternbach & Co., New York City, N. Y.-Gentlemen: The failure of Leopold Bros. & Co. will occur on the day this reaches you. We have advised them, and such is the fact, that the mortgage given you by Mr. H. Leopold, and which has been kept from record by agreement, is wholly ineffectual as security to you, and is fraudulent as to the subsequent creditors. Our opinion is that the mortgage should never be asserted or mentioned. The courts have lately held that where such a mortgage is given and withheld from record, a new one, to take the place of the old one, is also fraudulent. Be that as it may, Mr. Leopold is anxious to secure you on his individual property, to the extent possible, in justice to some others to whom he is also under confidential obligations. * * * Your prompt attention is necessary to make the security valid. Please regard this information for the present as confidential. Respectfully, Tenney, Church & Coffeen.’

‘Messrs. Stern & Kingsbury, 40 Wall Street, New York-Gentlemen: We write you at the request of Mr. Stern, of Stern & Adams, this city. Mr Henry Leopold gave to your clients, Herman Sternbach & Co., last winter, so we are informed, a mortgage on his individual real estate, to secure a lien of accommodations, which by agreement between the parties was to be kept off the record, so as not to injure the credit of Leopold's firm. A few days since, when the firm was about to get into hot water, Mr. Leopold informed us of this mortgage, and we told him such a mortgage would afford no security whatever to the mortgagee, as against creditors whose debts were contracted after its date, but as to that it would be fraudulent. Nearly the entire indebtendess of the firm has been contracted since that time; consequently we regard that security as of no value whatever, and so informed Mr. Leopold, and that, if his firm was about to fail, that he had better consider the situation carefully, the same as if that mortgage had not been given, and make such just and equitable preferences among his confidential creditors as he thought the circumstances attending each called for. He has done so, and has secured your clients by a mortgage on the undivided three-fourths of a block of ground at the corner of Calument avenue and 51st street, opposite the Washington Park, to the extent of $35,000, subject to two prior mortgages, one of $4,500, and one of $7,000. The property we suppose to be ample security for the three mortgages. Immediately following that came vast numbers of confessions of judgments. We wrote your clients to ratify our act in accepting this mortgage, so as to make it valid, and they promptly did so through Mr. Stern here. We do not expect to represent them in any other respect, unless they should wish us to, as we are the attorneys of Leopold Bros. & Co. Respectfully, Tenney, Church & Coffeen.’

There was a direct employment of Tenney, Church & Coffeen by appellants Lehman and Carrie Spiegelberg and Mayer and Goodheart, at the time the judgments were confessed in their favor, though the papers for that purpose had all been prepared by Tenney in advance of such employment. Neither Tenney nor his firm was employed by appellants Cole, Haas, or Carrie B. Leopold in person, until after the execution of the several mortgages in their favor; nor had they any knowledge of the fact that such instruments were to be executed until they were delivered to them by Tenney; but they were accepted by them, and returned to him to be placed on record. It clearly appears from the testimony of Mr. Tenney, that, while Henry Leopold designated the creditors which he wished to prefer, the plan and method of doing so was recommended by himself as attorney, and consented to by the firm of Leopold Bros. & Co. and Henry Leopold. The circuit court held each of the parties in whose favor these liens were given chargeable with notice of complainants' mortgage ‘from the fact that Henry Leopold and his attorney acted for them in that behalf, though without in fact informing them of the existence of that mortgage.’ That court decided, however, that the $60,000 mortgage was fraudulent in law and void, as against those parties, as to so much of their respective debts as were contracted after its execution, because it had been withheld from record by agreement of the parties thereto, and decreed accordingly; thus giving $6,500 of this $13,400 secured to Cole, and $5,387.21 of the $10,000 to Haas, and each of the confessed judgments in full as to lot 4, and each of the judgments in full as to the undivided three-fourths of block 7, priority over complainants' mortgage. By its decree, the whole of the debt of Carrie B. Leopold and the remaining portion of those due Cole and Haas were made junior to the lien of each of the confessed judgments. The $25,000 mortgage in favor of complainants was held void, and a decree of foreclosure on the $60,000 mortgage entered, subject to the liens found entitled to priority as above stated. From that decree the complainants in the original bill, Charles Sternbach et al., Isaac Haas, et al, holders of the mortgage of October 29th and Lehman Spiegelberg et al., in whose favor judgments had been confessed, each appealed to the appellate court of the First district. There, on a hearing of the several appeals as one, it was held the circuit court had erred in deciding that withholding complainants' mortgage from record was a fraud in law, and postponing it to the lien of said junior mortgages and judgments, and in that respect the decree below was reversed, but affirmed in all others, the cause being remanded, with directions to the circuit court to correct its decree by adjudging the...