Knass v. Madison & Kedzie State Bank

• Decision Date: 08 February 1934
• Docket Number: No. 22003.,22003.
• Court: Illinois Supreme Court
• Parties: KNASS et al. v. MADISON & KEDZIE STATE BANK et al.

354 Ill. 554

188 N.E. 836

KNASS et al.

v.MADISON & KEDZIE STATE BANK et al.

No. 22003.

Supreme Court of Illinois.

Dec. 22, 1933.

Rehearing Denied Feb. 8, 1934.

Suit by Frank Knass and wife against the Madison & Kedzie State Bank and another. On defendants' appeal to the Appellate Court, the decree of the trial court was reversed in part and affirmed in part (269 Ill. App. 588), and plaintiffs appeal.

Reversed and remanded, with directions.Appeal from First Branch Appellate Court, First District, on Appeal from Superior Court, Cook County; Robert E. Gentzel, Judge.

Shulman, Shulman & Abrams, of Chicago (Meyer Abrams, of Chicago, of counsel), for appellants Frank and Dina Knass.

Sims, Stransky & Brewer and Ryan, Condon & Livingston, all of Chicago (Franklin J. Stransky, James G. Condon, Otto W. Berg, and John J. Sharon, all of Chicago, of counsel), for appellants Madison & Kedzie State Bank and others.

Winston, Strawn & Shaw, of Chicago (Silas H. Strawn, Ralph M. Shaw, Harold Beacom, and Harold A. Smith, all of Chicago, of counsel), for appellee.

STONE, Justice.

This cause is here on appeal and certificate of importance granted by the Appellate Court for the First District to review the judgment of that court which reverses in part and affirms in part the decree of the superior court of Cook county.

One Frank Knass and his wife, Dina, filed an amended bill against the Madison & Kedzie State Bank and the Madison-Kedzie Trust & Savings Bank, both banking corporations, for specific performance of a contract to repurchase real estate mortgage bonds and for an accounting. The appeal from the Appellate Court and certificate of importance of that court have been granted on the motion of Frank and Dina Knass, who are hereinafter designated complainants, and on that of the Madison & Kedzie State Bank, herein designated the old bank, and its receiver. These appeals have been consolidated here. The Appellate Court affirmed the decree as to the old bank and its receiver and reversed it as against the Madison-Kedzie Trust & Savings Bank, hereinafter referred to as the new bank, except as to costs. The new bank appears here as appellee.

The bill alleges that prior to February 10, 1930, the old bank was a banking corporation incorporated under the laws of this state, and that on that date the new bank was organized and became the successor of the business formerly owned by the old bank and was at the time of the filing of the bill in possession of all of the assets of the old bank and engaged in general banking business in the premises formerly occupied by the old bank. It is alleged that on August 1, 1928, complainants were solicited by duly authorized agents of the old bank to purchase real estate securities in the form of first mortgage gold bonds placed by it on the market; that, in order to induce complainants to purchase these gold bonds, the old bank, by its agent, represented that they were secured by real estate in Cook county which had been appraised by the bank to be much in excess of the respective issues of gold bonds against such real estate and were safe and sound securities; and that, to induce complainants to purchase these bonds, the old bank delivered to them ‘a bill of sale for such bonds, some of which would contain the following: ‘We will re-purchase these bonds at any time after one year at 99 and after three and one-half years at par;’ and that others would contain the following clause: ‘These bonds may be cashed at any time after one year at 99 and accrued interest or in three and one-half years at par.’' The bill alleges that, relying on those representations, complainants on August 1, 1928, began, and thereafter continued, to purchase gold bonds from the old bank, such purchases amounting in all to approximately $100,000, and that all were purchased under the representations and agreements alleged in the bill. It is also alleged that thereafter the old bank recognized and ratified the agreements to repurchase, and did from time to time until October, 1929, repurchase from the complainants, pursuant to such agreements, bonds aggregating $60,000, but thereafter refused to be bound by the terms and provisions of the agreement or to take back bonds purchased from it when requested to do so. The bill also alleges that the complainants had found that the representation made to them as to the safety of their investment was false and known to be false when made by the agents of the old bank, that, in order to charge large commissions for selling the bonds, the old bank procured false appraisals of the real estate on which the bonds were a lien, and that, after the new bank had taken over the assets of the old bank, it from time to time paid the interest coupons on various bonds purchased by complainants. The bill also sets out that, subsequent to the date on which complainants began purchasing bonds of the old bank, Frank Knass, one of complainants, borrowed $20,000 from the old bank and put up as collateral certain of those bonds of a face value of $25,000, that his note was renewed from time to time and was taken over by the new bank as a part of the assets taken from the old bank, together with the bonds put up as collateral, and that, after the formation of the new bank, complainants demanded of the new bank that it take back all of the bonds purchased by complainants and still held by them and deduct from the repurchase price of the bonds held as collateral the amount due on the note, with interest, all of which the new bank refused to do. It is alleged that, by reason of the fact that the old bank had ceased to function as a banking institution and had turned over all its assets to the new institution, a judgment at law against the old bank would be of no avail to the complainants, and they in equity ought to be decreed to have a lien for their claims and demands against all of the assets acquired by the new bank. The prayer of the bill is that both banks be required to set forth their accounts in respect to the transfer of the assets from the old to the new bank and any payments made on the bonds held, and that the new bank be decreed to take back the bonds purchased by the complainants,and, after deducting 1 per cent. for operating charges and the amount of the collateral note, with interest, to pay over the balance to the complainants. Complainants offer to return the bonds purchased, and pray that the defendants be decreed to pay complainants anything found due on accounting.

The old bank by its answer denied the execution of the agreements as set out in the bill, and likewise denied that it, or any of its officials, had authority to enter into such agreements. It denied that complainants were entitled to any relief whatever. The new bank answered denying that it was in possession of all of the assets of the old bank or that it was successor to it in business, but stating the fact to be that it, under an agreement with the old bank, took over certain of the assets of that bank for the purpose of liquidating them in an orderly manner, and that among those assets were the note of the complainant Knass and the bonds put up by him as security. It also denied that it assumed and agreed to pay the liabilities of the old bank relating to repurchase agreements or that it in any way became liable on such agreements.

Three major questions are presented on this record as argued by counsel: (1) Whether the notations on the copy of the bills of sale received by complainants with the bonds they purchased are in law and fact contracts of the old bank and enforceable against its receiver; (2) whether such repurchase agreements, if in fact agreements of the old bank, are ultra vires the power of that bank and against the public policy of the state, and therefore unenforceable; and (3) whether, if valid and enforceable as contracts of the old bank, the new bank is bound thereby.

It is not contended that the new bank is bound if no liability exists against the old bank. The facts as shown in the record are that, on August 1, 1928, complainant Frank Knass purchased through one Zinder, a sales agent for the old bank, real estate mortgage bonds in the sum of $6,000 and interest. A memorandum of the sale, characterized in the bill as ‘a bill of sale,’ was made in duplicate, one copy of which was given to Knass and the other kept by the bank. On the margin of the copy received by Knass there was typewritten the following: ‘These bonds may be cashed at any time after one year at 99 and accruedinterest or in three and one-half years at par.’ This statement was signed ‘W. F. Gleason.’ Gleason was a vice president of the old bank and in charge of its bond sales. No notation pertaining to the cashing of the bonds appears on the duplicate of the sale memorandum retained by the bank. A few days thereafter Knass purchased, through Zinder, other real estate mortgage bonds amounting to $17,709.40. A similar notation appears on Knass' copy of the memorandum or bill of sale in the following words: ‘Will purchase these bonds at any time after one year at 99 and after three and one-half years at par if desired.’ To this notation appears the name W. F. Gleason. The copy of the memorandum or bill of sale retained by the bank did not carry the notation quoted. Thereafter complainants, or one of them, purchased other real estate mortgage bonds as charged in the bill, and on each memorandum or bill of sale received by complainants there appeared the repurchase agreement in one or other of the forms quoted. Some of such notations bore the signature ‘W. F. Gleason,’ and on others the characterization ‘V. Pres.’ or ‘V. P.’ followed his name. Gleason testified that he for some years had been following the practice of repurchasing bonds in accordance with notations such as appear on the memoranda of sales in this case. The record contains no evidence, however, of what, if any, authority he had to execute such repurchase...