Nonnast v. Northern Trust Co.

• Decision Date: 09 October 1940
• Docket Number: No. 25384.,25384.
• Citation: 29 N.E.2d 251,374 Ill. 248
• Parties: NONNAST et al. v. NORTHERN TRUST CO.
• Court: Illinois Supreme Court

374 Ill. 248

29 N.E.2d 251

NONNAST et al.

v.NORTHERN TRUST CO.

No. 25384.

Supreme Court of Illinois.

June 14, 1940.

As Modified on Denial of Rehearing Oct. 9, 1940.

Proceeding in the matter of the estate of Louis F. Nonnast, incompetent, and in the matter of the estate of Louis F. Nonnast, deceased, wherein Leonore G. Nonnast, guardian of Valerie L. Nonnast, and others, filed objections to the first and final account and report of the Northern Trust Company, as conservator of the estate of Louis F. Nonnast, incompetent, and objections to the first current account and report and amended second and final account and report of the Northern Trust Company, as executor of the estate of Louis F. Nonnast, deceased, wherein appeals from orders overruling the objections were consolidated in the circuit court. From a judgment of the Appellate Court reversing decree of the circuit court and surcharging the Northern Trust Company with various amounts, 300 Ill.App. 537, 21 N.E.2d 796, the Northern Trust Company appeals, and the objectors assign cross-errors.

Affirmed in part and remanded with directions.

SHAW, J., dissenting.Appeal from Third Division Appellate Court, First District, on Appeal from Circuit Court, Cook County; William F. Borders, Judge.

Warren H. Orr, Vernon R. Loucks, and Tenney, Harding, Sherman & Rogers, all of Chicago (Henry F. Tenney, Charles O. Loucks, and William W. Miller, all of Chicago, of counsel), for appellant.

Stearns & Jones, of Chicago (Malcolm McKerchar, Thurston R. Lundeberg, Robert V. Jones, Lloyd M. McBride, and Edward H. Baker, Jr., all of Chicago, of counsel), for appellees.

FARTHING, Justice.

Louis F. Nonnast died testate May 17, 1930. He had manufactured furniture successfully for many years and had acquired considerable wealth. In 1920, he incorporated his business as Louis F. Nonnast Sons, Inc., and turned the management over to his two sons, Harry, since deceased, and Emory Nonnast. He held ninety-five per cent of the stock and owned the building occupied, in part, by the factory. There were two other tenants, and the real estate was mortgaged for $150,000. The sons operated the business at a loss, so, in 1925, Nonnast resumed the management. Over a period of years he advanced $268,419.66, in cash, to the corporation. In February, 1930, he suffered a cerebral hemorrhage and was paralyzed. On March 1, 1930, the son Emory Nonnast, filed in the probate court of Cook county a petition to have the father adjudged incompetent, and the Northern Trust Company appointed conservator. On March 6, 1930, a jury found Nonnast was a ‘distracted person,’ and on the same day letters of conservatorship were issued to the trust company. Representatives of the trust company called on Louis F. Nonnast that day for the purpose, so they state, of determining the extent and condition of his estate, and his wishes with respect thereto. Since he could not talk, the discussion, according to the witnesses, was carried on by Nonnast nodding his head, indicating ‘yes' or ‘no’ to questions. Later, further calls were made by representatives of the trust company.

On March 13, 1930, the probate court having authorized it, the conservator hired Thulin & Company to make an audit of its ward's estate and of the furniture company. This audit showed the net estate of Louis F. Nonnast was $358,512.71, but events showed this was greatly exaggerated. The furniture company owed Nonnast $288,713.31 as of May 31, 1930, including interest; in the audit of the ward's estate this debt was shown as of March 15, 1930, and was then $282,948.81. This was estimated at twenty-five per cent of its face value, and the equity in the building at $150,000. When the mortgage was later foreclosed this equity was apparently worthless. The balance sheet of the furniture company as of March 15, 1930, showed a deficit of $265,914.40, but the audit disclosed that the company's condition was worse than shown by the balance sheet, since the latter included large sums for good-will and uncollectible accounts receivable, and over-valued the inventory and machinery. In spite of the fact that the furniture company was a corporation, the trust company undertook to run the business with the funds of its ward. On March 13, 1930, without notice to anyone, the conservator filed its petition in the probate court alleging that the furniture company had an inventory of $235,000, consisting almost entirely of furniture in process of manufacture, and requested an order to lend $17,500 of the funds of its incompetent to the furniture company. On that day the court granted this petition. The conservator sold its ward's securities, and advanced to the furniture company $15,200 before Nonnast died, and $4,800 more after his death, making a total of $20,000 which was never repaid. On October 8, 1930, Louis F. Nonnast's will was proved and admitted to record and letters testamentary were issued to the Northern Trust Company, as executor. This will gave no power to the executor to lend money to any one. Nevertheless, on November 26, 1930, the trust company, as executor, obtained another order from the probate court, again without notice, and advanced an additional $6,500 to the furniture company which has not been repaid.

On July 2, 1930, the Northern Trust Company, as conservator, filed a petition in the probate court representing that Louis F. Nonnast was liable on a guaranty of certain trade acceptances of the Grand Rapids Furniture Company which had been discounted with the Security Bank of Chicago, and requested authority to pay that bank. An order was entered granting this petition. The record fails to show that there were any such trade acceptances discounted at the Security Bank. Instead, that bank had three notes of Louis F. Nonnast Sons, Inc., and officers of the bank stated that Nonnast had guaranteed their payment in writing. The written guaranty was not produced in the circuit court, and the officers of the Security Bank testified that this instrument could not be found after the hearing in the probate court. No claim on these notes was ever filed by the bank in either estate, but, on July 15, 1930, the conservator paid $10,539.89 of the assets of the estate to the Security Bank to discharge these notes. There is no satisfactory proof that demand was made on the principal debtor, Louis F. Nonnast Sons, Inc., for payment, before the bank demanded payment from the supposed guarantor's personal representative. Neither is there any definite proof of the date or the amount named in the lost written guaranty, or payment of what accounts, if any, was guaranteed thereby.

In the latter part of May, 1930, following the death of Nonnast, the Northern Trust Company called a meeting to decide what should be done about the business of Louis F. Nonnast Sons, Inc. This meeting was attended by three officers of the trust company, the attorney for it as conservator, the secretary and bookkeeper of the furniture company and Emory Nonnast. At this meeting, it is stated, it was decided to liquidate the company. About the same time two directors of the furniture company resigned. An officer of the trust company and the attorney for it as conservator, were elected, and Theel, the secretary of the furniture company, was the third director. Since there were only three directors, this placed the absolute control of the furniture company in the trust company. Although liquidation had been decided upon, the conservator instructed Thulin & Company, who were accountants,to install a cost accounting system for the furniture company and also to furnish a manager. D. T. Hill, an employee of Thulin & Company, was made manager at a salary of $325 a month. This $325 a month was paid to Thulin & Company for several months, but Hill only received $200 a month. He began work June 1, 1930. On August 2, 1930, the conservator paid Thulin & Company the sum of $1,300, made up of the June salary for Hill and $975 for the audits already mentioned. On September 9, 1930, before the will was proved and before letters testamentary issued, and also before the conservator's report was filed, the trust company, as executor, paid Thulin & Company $1,625 as salary for Hill, for the months of July to November, inclusive. From December on, Hill's salary was paid by the furniture company directly to him. No furniture was manufactured by the Louis F. Nonnast Sons, Inc., after the middle of February, 1931.

In 1929, Louis F. Nonnast Sons, Inc., by W. H. Theel, its secretary, entered into a contract with the Commonwealth Edison Company for the purchase of electrical equipment for the factory. The price was $28,833.34 payable in monthly installments. This was a conditional sales contract, and it was not signed by Louis F. Nonnast in any capacity. Beginning with February, 1931, the executor made four payments on this contract totalling $2,988.15, although no claim was ever filed by that company or made against Louis F. Nonnast either before or after he died. There is no evidence that Louis F. Nonnast ever executed any written guaranty of the payments due under this contract.

The trust company proceeded with the liquidation of the furniture company, and paid all its creditors in full except the estate of Louis F. Nonnast. That estate was the furniture company's main creditor, yet it received only $1,600 out of the $47,253.22 paid to creditors.

The trust company negotiated a sale of the equipment and inventory of the furniture company to three men named Ryan, Doyle and Hayes. On August 4, 1931, the executor obtained the approval by the probate court of a contract for the sale of these assets of the furniture company for $65,000, nothing down, but on monthly payments commencing at $208.33, and leasing to the purchasers for five years the part of Louis F. Nonnast's building occupied by the factory. These purchasers assigned the contract and lease to a new corporation they formed, operated about nine...