Winger v. Chicago City Bank & Trust Co.

• Decision Date: 11 April 1945
• Docket Number: Gen. No. 42987.
• Citation: 60 N.E.2d 560,325 Ill.App. 459
• Parties: WINGER et al. v. CHICAGO CITY BANK & TRUST CO. et al., and three other cases.
• Court: United States Appellate Court of Illinois

325 Ill.App. 459

60 N.E.2d 560

WINGER et al.

v.

CHICAGO CITY BANK & TRUST CO. et al., and three other cases.

Gen. No. 42987.

Appellate Court of Illinois, First District, Third Division.

March 21, 1945.

As Modified on Denial of Rehearing April 11, 1945.

Appeal from Circuit Court, Cook County; Julius H. Miner, Judge.

Action by James Wilson Winger and others against the Chicago City Bank & Trust Company, trustee and others, to recover on behalf of the Illinois Bankers Life Assurance Association and its members from the estate of Hugh T. Martin, deceased, and others, former directors of the Association, money alleged to have been wrongfully acquired by certain directors at time of the transfer of all of the Association's assets to the Illinois Bankers Life Assurance Company, and to impose a constructive trust upon certain shares of stock issued to certain directors and held by the defendant bank as trustee, wherein Ella Krupicka and others, and John B. Robinson filed intervening petitions and the Illinois Bankers Life Assurance Company filed a counterclaim. From the decree, defendants Helen Z. Martin, individually and as administratrix of the estate of Hugh T. Martin, deceased, and others, George B. Pillsbury, administrator of the estate of Arthur T. Sawyer, deceased, and James D. Stice appeal, and the Illinois Bankers Life Assurance Company filed cross-errors.

Affirmed in part and remanded with directions.John S. Leahy, of St. Louis, for appellants Helen Z. Martin et al.

Cassels, Potter & Bentley, of Chicago, and A. M. Fitzgerald, of Springfield (Ralph F. Potter, Leslie H. Vogel, and George C. Bunge, all of Chicago, of counsel), for appellants George B. Pillsbury, et al.

C. J. Bassler and William S. Kleinman, both of Chicago, for intervenors-appellees Ella Krupicka et al.

Maxfield Weisbrod, of Chicago, for intervenor-appellee John B. Robinson.

Vernon R. Loucks and Malcolm R. McKerchar, both of Chicago (Charles O. Loucks and Richard W. Proctor, both of Chicago, of counsel), for plaintiffs-appellees.

Poppenhusen, Johnston, Thompson & Raymond, of Chicago (Edward R. Johnston, of Chicago, of counsel), for appellee and cross-appellant Illinois Bankers Life Assur. Co.

LUPE, Justice.

Illinois Bankers Life Association (hereinafter referred to as ‘association’) was organized under the laws of this state as a mutual assessment life insurance company, in the year 1897. It proceeded to do an insurance business in this state and in other states until the year 1929, when all of its assets were transferred to the Illinois Bankers Life Assurance Company (hereinafter referred to as ‘company’) under the terms of a constract of reinsurance bearing date November 19, 1929.

At the time of the making of the contract of reinsurance, the directors and officers of the association were William H. Woods, J. R. Ebersole, Arthur T. Sawyer, R. M. Work, and Hugh T. Martin. The record discloses that just prior to the making of the contract of reinsurance these directors agreed among themselves that they would organize a legal reserve insurance corporation under the laws of this state; that this new corporation would have a capital of $100,000 to be represented by 1000 shares of stock; that there should be a surplus of $50,000; that 200 shares of stock of the new corporation should be issued to each of said five directors, but that Woods, Ebersole, and Work would each endorse their certificates to Martin, so that upon the conclusion of the stock transaction Martin would hold and own 800 shares of stock and Sawyer 200 shares; that each of the five directors were to assist in every way in the proposed transfer of all the assets of the association to the new legal reserve company under a proposed contract of reinsurance; that in consideration of such assistance by Woods, Ebersole, Work and Sawyer, Woods was to receive from Martin $100,000 in cash before the deal was consummated, and $60,000 in deferred payments to be evidenced by notes signed by Martin and another director of the association; that Woods was to be president of the new company at a salary of $30,000 per annum; that Ebersole was to receive from Martin $25,000 in cash and $75,000 in deferred payments to be evidenced by notes similar to those to be given to Woods; that Work was to receive $75,000 in cash, and Work was to deliver to Martin certain real estate then owned by Work, on which the association held a mortgage, and Martin was to take care of Work's $15,000 note at the bank; and Sawyer, without the payment of any money by him, was to receive 20 per cent of the stock of the new company to be issued in his name. Pursuant to this scheme, and agreement, on September 13, 1929, the above named officers organized as a legal reserve life insurance company the present assurance company, and a contract of reinsurance was entered into under date of November 19, 1929, between the association and the company. This contract was approved by the Director of Trade and Commerce of the State of Illinois.

After the new company was organized, the same officers and directors of the association elected themselves as officers and directors of the new company; they solicited proxies of the various policyholders of the association for the purpose of voting on the reinsurance contract, and by such solicitation they garnered 15,339 proxies wherein power was given to Martin to vote for and on behalf of such policyholders. At the meeting which was held on the question of whether or not a reinsurance contract should be entered into between the association and the new company, there were 15,401 votes cast, of which Martin cast by proxy 15,339 in favor of the reinsurance contract. At no time, either prior to the receipt of the proxies or thereafter had Martin or the named officers informed any of the policyholders of their scheme to take over the assets of the association by reason of the reinsurance contract, nor did they inform the policyholders of the bribes that were paid by Martin to the other officers or directors of the association.

The contract of reinsurance provided for the transfer to and the assumption by the company of all assets, liabilities, policies, and risks of the association; that all premiums under policies issued by the association were thereafter to be paid to the company; that the company should have the same right to levy assessments as the association; that all funds of the association should be held by the company as a trust fund for the benefit only of the members of the association; that there should be credited to such trust fund all premiums and assessments paid by continuing members, less a deduction of 25 per cent for the first two years and 22 1/2 per cent thereafter, as a contribution to the expenses of the company, together with interest at from 3 1/2 to 4 1/2 per cent; that that proportion of the surplus earnings of the company accumulated during each year which the total assessment premium income bore to the total renewal premium income of the company should also be credited to such trust fund; that each member of the association so reinsured should have the right to have his certificate or policy converted into any policy issued by the company for that purpose, upon proper adjustment of premiums reserves and without additional medical examination, with certain exceptions; that upon giving ten days' notice for a meeting at which said contract was approved, of his preference to be transferred to some other corporation than the company, such member or policyholder giving said notice should be accorded all the rights and privileges in and of said transfer as would have been accorded under the terms of the contract had the member or policyholder been transferred to the company as provided by section 16 of the act with reference to the incorporation of companies to do the business of life or accident insurance on the assessment plan, etc.

The contract further provided that the company assumed and agreed to pay out of the funds of the association so transferred, all of the valid unpaid claims against the association by reason of the death or disability of members occurring prior to the time the contract was to take effect, and all other valid claims against the association; that the company should not be liable to the individual members or policyholders of the association for any share or portion of the assets of the association; and that the company assumed the liability of the association to pay renewal commissions under all contracts of agency theretofore entered into between said association and its agency managers and agents.

The record discloses that upon the approval and execution of the contract of reinsurance, the association, on the same day (November 19, 1929), executed and delivered to the company (Plaintiffs' Exhibit 98) a written assignment of all its assets, moneys, notes, bonds, mortgages, securities, judgments, choses in action, real property, and property of every kind and character wherever situated, belonging to the association.

The capital and paid-in surplus of the company was $150,000. This amount was, on October 10, 1929, borrowed from the Boulevard Bridge Bank on a note signed by Martin and Sawyer who were directors of the association and of the company, and by one John P. Nichol (who acted as an agent for Martin). The total authorized stock of the company, consisting of 1000 shares, was issued in pursuance to the scheme and agreement between all of said directors as hereinabove set forth, 200 shares each to Martin, Woods, Ebersole, Work, and Sawyer. Upon receipt of said stock by Woods, Ebersole and Work, each of them endorsed in blank the certificates issued to them and delivered said certificates to Martin. These certificates, together with the certificates issued to Martin and Sawyer and a certificate of deposit in the sum of $50,000, representing the paid-in surplus of the company, were deposited with said bank as security for the note...