Schmitt v. Wright

• Decision Date: 09 February 1943
• Docket Number: Gen. No. 42045.
• Citation: 46 N.E.2d 184,317 Ill.App. 384
• Parties: SCHMITT v. WRIGHT ET AL.
• Court: United States Appellate Court of Illinois

317 Ill.App. 384

46 N.E.2d 184

SCHMITT

v.WRIGHT ET AL.

Gen. No. 42045.

Appellate Court of Illinois, First District, Third Division.

Jan. 6, 1943.

Rehearing Denied Feb. 9, 1943.

Appeal from Circuit Court, Cook County; Philip J. Finnegan, Judge.

Suit by Arthur J. Schmitt against J. Piling Wright, the Continental Diamond Fibre Company and others for the purpose of having certain real estate, machinery and equipment impressed with a trust and an accounting, subsequently dismissed except as to defendants named. From the decree, defendants appeal and plaintiff cross-appeals.

Cross-appeal denied and decree affirmed.

BURKE, P. J., dissenting. Rosen, Francis & Cleveland, of Chicago (John F. Rosen and James B. O'Shaughnessy, both of Chicago, of counsel), for appellant.

Tenney, Sherman, Rogers & Guthrie, of Chicago (George T. Rogers and L. Dow Nichol, Jr., both of Chicago, of counsel), for appellees.

HEBEL, Justice.

This is an appeal by the defendants from a decree entered by the court confirming the Master's reports, decreeing that certain real estate, machinery and equipment be impressed with a trust and ordering that the cause be referred to a Master to take an accounting upon the basis fixed by the decree.

The plaintiff on November 29, 1932, filed his original complaint in chancery against the present defendants and others. He asked for a decree (1) granting him leave to redeem certain capital stock in Walnart Electric Mfg. Company from a chattel mortgage; (2) for an accounting; and (3) for a conveyance of certain real estate and personal property to the stockholders of the Walnart Company. Certain amendments were filed by plaintiff to the original complaint. General and special demurrers were filed by defendants. The general demurrer and a special demurrer based on laches were sustained by the court and a decree entered dismissed the complaint for want of equity. An appeal was taken by plaintiff to the Illinois Supreme Court, which held that no freehold was involved and transferred the cause to this court. Schmitt v. Wright et al., 357 Ill. 509, 192 N.E. 562. Subsequently this court reversed the decree and remanded the cause. Schmitt v. Wright, 283 Ill.App. 628. After remandment on January 24, 1938, plaintiff by leave of the trial court, filed the amended complaint now before this court. The amended complaint asked for a decree (1) granting leave to plaintiff to redeem certain capital stock of Walnart Electric Mfg. Company held by defendants under an agreement of May 4, 1925; (2) for an accounting; and (3) that a trust be declared in certain real estate and personal property in favor of plaintiff, and that the same be ordered conveyed to plaintiff and other stockholders of Walnart. Thereafter the suit was dismissed as to all defendants except Continental-Diamond Fibre Company, a corporation, and Wright, appellants here. Answers of defendants to the amended complaint were subsequently filed. The cause was referred to a Master in Chancery to take proofs on the questions raised by the pleadings as to the right of plaintiff to relief and, if it was determined that plaintiff was entitled to an accounting, to report his conclusions as to the proper scope and basis for such accounting. Testimony was taken before the Master and after arguments the Master made his original report. Objections to the report were filed by defendants, some of which were sustained and others overruled. The Master, acting upon such objections, made a supplemental report to which both plaintiff and defendants filed objections. These objections, with one exception, were overruled by the Master. By order of court the overruled objections of defendants and plaintiff to the Master's reports were made exceptions in the trial court. These were argued in the trial court and were overruled by it with one exception (not material on this appeal), and the decree above mentioned was entered by the court, from which decree defendants appeal, and from which plaintiff takes a cross-appeal.

The theory of plaintiff's case is that defendants took over, held and operated the Walnart properties as security for the payment of a debt, under a contract that entitled them to hold and operate the business and properties for a period of four years, unless such indebtedness should be paid sooner, either through the operation of the business, or by the plaintiff; that during this period defendants made huge profits, both through conducting the business and from materials which they (as operators of Walnart) purchased from themselves at prices from 10% to 20% above those charged to others; that these profits were largely in excess of the amount of the indebtedness; but that instead of returning plaintiff's stock in Walnart to him, as agreed, they wrongfully took over while still acting as trustees the business, customers, secret processes, patents, and all of the other properties as their own, without the payment of consideration and without accounting to plaintiff and to other stockholders of Walnart therefor.

The defendants' theories of the case are that the May 4, 1925 contract did not create a trust relationship; that the intention expressed in the instrument is controlling;that the contract gave defendants the express power and right at any time after its date to sell or liquidate the Walnart business, with or without plaintiff's consent; that neither did the true circumstances under which the contract was made create an implied trust in the Walnart business, and that even if there was a trust, plaintiff (under his theory the cestui que trust) expressly consented to the sale of the Walnart business, voluntarily executing on behalf of Walnart, documents of conveyance; that these documents constituted actual conveyances and were understood by plaintiff to be such before and after their execution; that plaintiff did not question these conveyances within a reasonable time after they were made but, having full knowledge of all of the material facts, waited for a period of approximately six years after he executed the documents before making any protests or contentions; that, if these documents were valid, plaintiff was not entitled to relief because his entire theory was predicated upon the proposition that Walnart was entitled to profits made in the operation of the Walnart premises after September 30, 1926, the date of the bill of sale; that the opinion of the Appellate Court on the first appeal is not res adjudicata on the question of the existence of a trust, because (1) the case was not decided in this court on its merits (the allegations of plaintiff in his original complaint, as amended, before this court having been, on demurrer, taken as true); (2) the allegations, theory and prayer of the amended complaint and the proof in their support now before this court, are essentially different from the case before the court on the former appeal; and (3) the order of this court reversing and remanding the cause was not appealable; that on plaintiff's trust theory, the relationship of the parties was, in any event, terminated in May, 1929, when defendants disposed of the remaining Walnart assets pursuant to plaintiff's express direction that this be done; and that if plaintiff ever did have a cause of action, it was barred by his subsequent laches and course of conduct.

Plaintiff suggests with reference to his cross-appeal that defendants' counsel's statement that the Master held the taking over by defendant of the properties in 1926 to be a sale, is based upon their own construction of the Master's language in his Supplemental Report and not upon what the Master says. It is contended by plaintiff that what the Master says, in his supplemental report is that plaintiff is not entitled to an accounting for profits made by defendants after October 1, 1926, but only to an accounting for the use of the business, building, machinery and equipment after October 1, 1926. That the argument made by defendants' counsel is that the Master intended by this language to hold that the instrument which counsel call a bill of sale “constituted a valid sale as far as the profits after October 1, 1926, were concerned, but nevertheless found that it was not a valid sale as far as tangible assets described in the bill of sale were concerned.” Plaintiff urges that the decree materially modified the foregoing finding of the Master by providing for the consideration of the profits in measuring the value of the use, which fact counsel has failed to mention. It is further urged that that language of the Master or the language of the decree cannot be construed to mean that the so-called sale was valid and that defendants, as trustees, were entitled to keep all profits wrongfully made by them from the trust. However, since there is a difference of opinion as to the construction of the above language, plaintiff asks this court to clarify it, or if this court believes that said language is susceptible of the construction that defendants' counsel give it, then to reverse that paragraph of the decree (paragraph C) and to state the correct rule of law. The cross-appeal is filed solely for that purpose.

The conclusions of the Master's report and the decree are substantially as follows: The Master found against plaintiff respecting three of the material allegations of his complaint and of his theories, finding in effect that (1) plaintiff had not sustained his allegation that defendants represented to plaintiff prior to the execution of the May 4, 1925, contract that Walnart could pay for Continental materials purchased on credit at its convenience; (2) that plaintiff had failed to prove that the September and October, 1926, bill of sale and lease were secured on defendants' representations that they were to be used by defendants for the purpose of facilitating the operation of Walnart by defendants for Walnart's benefit; and (3) (passing upon plaintiff's theory which is the basis of his...