Stark v. Chicago Title & Trust Co.

• Decision Date: 17 November 1942
• Docket Number: Gen. No. 42113.
• Citation: 316 Ill.App. 353,45 N.E.2d 81
• Court: United States Appellate Court of Illinois
• Parties: STARK v. CHICAGO TITLE & TRUST CO.

316 Ill.App. 353

45 N.E.2d 81

STARK

v.CHICAGO TITLE & TRUST CO.

Gen. No. 42113.

Appellate Court of Illinois, First District, Second Division.

Nov. 17, 1942.

Appeal from Circuit Court, Cook County; William F. Borders, Special Judge.

Action by Malcolm B. Stark against the Chicago Title & Trust Company for violation of escrow agreement. From a judgment for defendant, plaintiff appeals.

Affirmed. Folsom, Grossberg, Brill & May, of Chicago, for appellant.

Harold L. Reeve and Elmer M. Leesman, both of Chicago, for appellee.

FRIEND, Justice.

Plaintiff sued to recover damages from defendant for its alleged violation of an escrow agreement under which it was made depositary, with its consent and for a consideration, of certain stock certificates and other documents which it was authorized to hold and directed to deliver subject to the written instructions of the parties. Trial by the court without a jury resulted in finding and judgment in favor of defendant for costs, from which plaintiff has taken an appeal.

There is substantially no dispute as to the essential facts, which are set forth in the pleadings and are supported by testimony adduced upon trial. It appears that February 17, 1937, Malcolm B. Stark and J. I. Sperling executed and delivered to Chicago Title & Trust Company an agreement in escrow for deposit by Sperling, on behalf of Superior System, Inc., of six bearer notes signed respectively by B. H. Weiss as president and Samuel Lancet as treasurer, two for $2,500 and four for $2,300 each, the first one due March 15, 1937, and the others maturing one month apart; and for the deposit by Stark, a lawyer in New York city, of two stock certificates aggregating 75 shares and constituting 25 per cent of the capital stock of Superior System, Inc., of which he was the owner, together with his resignation as officer and director of the corporation, waiver, and certain minutes of a special meeting of the board of directors held February 17, 1937.

Defendant accepted the escrow and was authorized and directed to hold the respective deposits subject to the following instructions:

“First--Receive the payment on the notes deposited and forward the collections therefor to the order of Malcolm B. Stark.

“Second--Cancel notes as paid and deliver same to the order of J. I. Sperling.

“Third--Upon payment of the fourth note, due June 15th, 1937, deliver the resignation as an officer and minutes of special meeting of Board of Directors held February 17, 1937, and release of salary as an officer signed by Malcolm B. Stark, to the order of J. I. Sperling.

“Fourth--Upon payment of the final note, deliver the stock certificates deposited herein, together with the executed proxy and resignation of directorship to the order of J. I. Sperling.

“Fifth--That in the event of default in the payment of any of the aforesaid notes, the stock certificates, proxy agreement, and resignation of directorship, deposited pursuant to this escrow by Malcolm B. Stark, shall be returned to said Malcolm B. Stark and any and all payments of notes made to Malcolm B. Stark heretofore hereunder shall be retained by Malcolm B. Stark as liquidated damages and not as a penalty.”

The first two notes were paid at maturity. With plaintiff's consent, payment of the note which became due May 15 was extended $800 to May 22, $800 to May 29 and $700 to June 5. In consenting to the extension plaintiff wrote the escrowee that, “in the event of a default by Superior System in the payment of any one of these three sums upon the due dates, I shall preserve my remedies with respect to the original note #3.” A similar letter was written relative to extension of the note due June 15 to June 18, June 25, and July 2, respectively. Notes 3 and 4 were paid as provided by the letters of extension and the proceeds of the four notes, aggregating some $9,600, were transmitted by defendant to Stark, who claimed the sums paid as liquidated damages under the escrow agreement because of default in payment of notes numbered 5 and 6. Note No. 5 fell due Thursday, July 15, 1937. On the succeeding day, July 16, defendant sent a telegram to plaintiff informing him that the note had not been paid. Thereafter, on the same day, defendant received a letter from Sperling, attorney for Superior System, Inc., advising that his client, the signer of the note, had filed a voluntary petition in bankruptcy for reorganization in the Federal court under sec. 77B, Bankr.Act, 11 U.S.C.A. § 207, and by reason thereof was unable to make any payments on the notes remaining due without order of court. The letter advised defendant to keep all matters pertaining to the escrow in status quo until further notice. After receipt of this letter from Sperling and on the same day (July 16) defendant received a telegram from plaintiff asking for the immediate return of the certificates of stock, proxy agreement, and the resignation of Stark as director. July 17 fell on Saturday and the business day of the Chicago Title & Trust Company ended at 12:30 p.m. On that day defendant received a letter from plaintiff, which had been sent by registered air mail, confirming his telegram of the previous day, and again demanding return of the stock certificates and other deposits. Defendant immediately advised Stark by telegram that it had received notice of the filing of a voluntary petition in bankruptcy by Superior System, Inc. Thereafter, Monday, July 19, defendant received a letter from Sperling dated July 17, informing defendant on behalf of Superior System, Inc., that he intended making an application in the Federal court for a general restraining order not later than the succeeding Wednesday, requesting that defendant retain all deposits in the escrow, and suggesting that he (Sperling) be notified by telephone before defendant took any steps for redelivery of the deposits to plaintiff. On that same day, July 19, defendant was served with notice in the bankruptcy proceeding, notifying it that on the following day at the opening of court Superior System, Inc., would apply for an injunction restraining defendant from releasing, relinquishing or returning any of the deposits made with it under the escrow agreement. Attached to the notice was a copy of the petition to be presented, in which the escrow instruments were described and in which it was stated that Superior System, Inc., had prior thereto, July 15, 1937, filed its petition for reorganization under sec. 77B and was therefore without power to make any further payments under the terms of the agreement. The restraining order in the bankruptcy proceeding was entered Tuesday, July 20. Defendant thereupon withheld compliance with plaintiff's demand for return of the documents until the dissolution of the injunction in October, 1937, following the summer vacation.

After defendant had filed its amended answer to the complaint, the motion judge of the Circuit court sustained plaintiff's motion to strike portions of the answer, including averments that July 16, following receipt of Sperling's letter and plaintiff's telegram demanding the immediate return of the escrow deposits, Joseph D. Shelly, defendant's chief escrow officer, consulted with Edmund J. Reynolds, one of the...