Court Opinion

ID: 6994017
Source: CourtListenerOpinion
Date Created: 2022-07-24 03:30:02.559788+00
Date Added: 2024-06-11T16:09:42.561307
License: Public Domain

Mr. Justice Shepard. In October, 1890, about thirty persons, including the appellants, Maggs, Gilliland and J. E. McDowell, organized an association, under the name of the Cook County Land Investment Association, which was in effect a partnership, for the purpose of dealing in land. Eo time was limited for its duration. Articles of association and agreement were reduced to writing and signed by all Avho became members. The Avriting provided, among other things, that Stephen B. YanKirk, one of the partners, should take and hold title to all lands Avhich might be acquired, in trust for the partnership, and that three other partners, Maggs, McLennan and Church, should be a managing committee to whom should be intrusted the active control of the affairs of the association. Shortly afterward, and on the twenty-eighth day of the same month, the said managing committee bought a tract of tAArenty acres of land in this county, and ten days later sold the same at a price' AArhich netted a profit of nearly tAventy dollars on each share of stock on Avhich twenty-five dollars had been paid. The defendant, J. Erwin McDowell, acted as the attorney of the association in all legal matters pertaining to the said purchase and sale, and he Avas one of the partners. Eo complaint is made of the administration of the affairs of the association connected with this first purchase and sale. Immediately after the sale of said twenty-acre tract, and before the transaction had been entirely closed up as between the members of the association, Haggs, who was one of the managing committee, Yan Kirie, who was trustee, appointed to take and hold title, and Gilliland, who was a partner, in the association, went out and examined another tract of 160 acres, which at that time belonged to one Thomas Lewis; and such negotiations were subsequently had, by the intervention of J. Erwin McDowell, who knew Lewis, as resulted, on ¡November 15,1890, in an agreement by Lewis to sell the land for $32,000, which was at the rate of $200 per acre. Some delays occurred, and it was not until about two weeks later that the contract was actually reduced to.writing and signed. The written contract provided for a sale by Lewis to one Anderson E. Martin, who was first seen or known by Lewis in the transaction, at the time of executing the contract, and the payment of $1,000 as earnest money. Martin was a friend of McDowell and Gilliland. The written agreement was dated on ¡November 29th, but, the earnest money not having been raised, it was not signed by Lewis until at the time the $1,000 was paid to him, on December 3, 1890. Thereupon the following circular was prepared : “¡November 29, 1890. “ To the Subscribers of the Cook County Land Investment Association: “We have an option on 160 acres at Harvey, one mile frontage on Western avenue, running from 151st street to 159th street, at $350 per acre. It is our opinion that this property can be very rapidly turned over at a magnificent advance, and as it is necessary to raise' one-fifth the amount of purchase money inside of sixty days, the shares will be of the value of $125, payable $25 cash, $25 one year, $25 two years, $25 three years and $25 four years, with six per cent interest. Before closing this deal, we must have the shares guaranteed, as it will take 500 shares to carry through. Place your names on other side, and mark against same number of shares you would like allotted to you. ¡Respectfully yours, Managing Committee.” This circular was passed around and signed by Maggs, Gilliland and McDowell, and many others, with the number of shares each desired to take marked against their names. Martin did not sign, but following under McDowell’s name, •McDowell wrote: “ Grantor agrees to take last 100 shares if not otherwise disposed of,” and McDowell testifies that by “ grantor ” he meant Martin. On the same day of the signing of the contract of sale from Lewis to Martin, Martin gave a contract of sale of the same premises to Yan Kirk, as trustee, for §56,000, which was at the rate of $350 per acre. Thereupon McDowell, on December 3, 1890, issued tlio following circular to the members of the syndicate who had signed the circular issued by the Managing Committee: “ To the Cook County Land Investment Company: “ In accordance with your instructions, I have this day secured a contract with A. E. Martin for the sale of the east half of the east half of section thirteen, township thirty-six north, range thirteen, east of the third principal meridian, and have delivered thereon, as a deposit, the «$1,000 furnished by your company, and have placed the contract with the Merchants’ National Bank, subject to the joint order of Martin and myself. This contract calls for the payment of $10,200 within sixty days from November 29,1890, at which time the deed is to be given, together with four notes of $11,200 each, due in one, two, three and four years from November 29, 1890.” (Signed) J. Eewin McDowell. 12—3—90.” Up to this time there had been no steps taken for the formation of a new association, unless, perhaps, the fact that individuals who had not been interested in the syndicate that bought the first twenty acres, had subscribed to the circular sent out by the managing committee concerning the purchase of the 160 acres, might' be so considered. J. Erwin McDowell, who had acted as attorney in all legal matters pertaining to the first purchase, was acting as such in the 1G0 acre purchase, and so far as appears, the old association was still in active existence. Both the contracts for the sale by Lewis to Martin, and by Martin to Van Kirk as trustee, bore the same date, and were by their terms to be performed within precisely the same time. Van Kirk had refused to act alone as trustee in the 160 acre purchase, because he feared so great a responsibility, and it had been agreed that J. Erwin McDowell should act Avith him in that manner, as co-trustee. On January 14, 1891, a meeting of the managers of the association aatis held and the proceedings of that meeting appear sufficiently in the following circular of the treasurer of the association sent to'the several members: “ Cook County Land Investment Coin?any, Boom 70, 159 La Salle street. “ At a meeting of the managers of the Cook County Land Investment Company, held at 7: 30 p. m., January 14th, the trustee’s and treasurer’s reports Avere read and accepted and a dividend declared of $19.50 per share, thus closing out the purchase and sale of twenty acre tract at Harvey. A tract of 160 acres at same place was contracted for on the 29th day of November, 1890, and $1,000 paid on December 3d last, as earnest money, and balance of first payment, viz., $10,200, has to be paid on January 28th, when a deed will be given to Stephen Van Kirk and J. E. McDoivell, (attorney) acting as joint trustees. Subscribers to this deal must pay their first installment of $25 per share to the treasurer on or before the 20 th of January, as in case of non-payment by that date, the managing committee will have to dispose of shares to other parties; for if money is ^not paid and deed taken up on the 28th inst., the $1,000 earnest money will be forfeited. Treasurer has in his possession $347.50 to your credit; kindly remit balance due, viz., $27.50, to secure your shares in 160 acre deal, and return your receipts for shares in old deal, upon receipt of Avhich treasurer will forward you a new one. C. H. Biester, Treasurer.” It thus appears that, the managing committee at this meeting transacted business in reference to both the twenty acre and the 160 acre deals, and that the investment and income from the twenty acre deal could apply toward subscriptions to the 160 acres. Van Kirk had objected to signing purchase money notes for the large amount of deferred payments going to Lewis, and so had Martin, and Lewis himself seems to have been unwilling to execute the covenants in a warranty deed wherein the consideration to be expressed was §24,000 greater than what he was to receive. These difficulties were overcome by Martin directing Lewis, in writing, to make a deed to John S. McDowell, a brother of J. Erwin McDowell, who, it was arranged, should take the title for the stockholders, and execute the notes and trust deeds for the balance due to Lewis, and for the excess over what was going to Lewis, and by the giving, by John S. McDowell to Lewis, a writing exempting Lewis from liability on his covenants beyond the consideration of ■§32,000, which he was actually to receive. These writings were as follows: “ Chicago, 111., January 28,-1891. Thomas Lewis, Esq., Dear Sir: Please make deed of conveyance of a certain contract made with me November 2-9, 1890, now in escrow in the Commercial National Bank, to John S. McDowell. I have relinquished all right to said contract. Tours truly, A. E. Martlet.33 “ Tiiomas Lewis, Esq., Having taken the land in the above assignment by warranty deed for §56,000, I agree that the warranty shall not extend to more than §32,000. Johit S. McDowell. Dated January 28, 1891.” Lewis then conveyed the land to John S. McDowell, and received from J. Erwin McDowell §7,000 in cash and two notes of §8,000 each, payable in three and four years, respectively, with interest, secured by a first lien on the property by trust deed to John H. Olmstead, executed by John S. McDowell; and as of the same date,-John S. McDowell executed a second trust deed to Hewton Wyeth, trustee, securing nine notes, one each for $2,000 and $1,200 due in one year; one each for $2,000 and $1,200 due in two years; two for $3,000 and one for $1,200, due in three years, and one for $6,000 and one for $1,200, due in four years, a total of thirteen notes. Hew articles of agreement and association were prepared by J. Erwin McDowell, and submitted at the meeting on January 14,1891, and were signed by some seventy-five persons, including McDowell and Gilliland. The provisions of the new agreement were substantially like those of the first articles, excepting that they provided for John 8. McDowell as a co-trustee with Van Kirk, and specified the particular tract of 160 acres that had been purchased. All who had signed the first agreement were given an opportunity to sign the last one, and many did so. In- consequence of the purchase being a much larger one, quite a number of persons became subscribers to the new purchase, who were not interested in the first, or twenty acre transaction. We can not go into all the details of the two purchases without extending this opinion to an undue length. Enough has been stated to show the facts upon which the bill was based, for the purpose of holding Gilliland, McDowell and Martin as trustees, and to avoid the trust deeds and notes given to secure payment of the difference between what Lewis sold the land for and the price at which it was turned over to the association. The defense rests mainly upon the contention that there were two entirely distinct associations, and that the defendants were not agents of either one in the 160 acre transaction; and while there is evidence tending to establish the defense, the overwhelming weight of the evidence, in our opinion, sustains all the material allegations of the bill. The master found the facts to be substantially as stated in the bill, and the Circuit Court entered a decree finding that the association ivas a copartnership; that J. Erwin McDowell was its attorney, and. that both he and Gilliland were members of the partnership; that Martin never had any Iona fide interest in the 160 acres, but was a mere instrument of Gilliland and J. Erwin McDowell to defraud their copartners, and had knowledge of their unlawful scheme; that J. Erwin McDowell, Gilliland and Martin, were joint tort-feasors, and must account for the 03,200 received by them from the association, over what was paid to Lewis, and that the notes secured by trust deed for 020,800, representing the difference between what was agreed to be paid to Lewis, and what the land ivas turned into the association at, should be given up and canceled, and that trust deed released. We think the decree of the Circuit Court was most clearly right. Whether there was or was not more than one association in fact, can make no difference. The second agreement ivas but an enlargement of the' first, adapted to the new conditions. It in no way extinguished the first. The mere fact that other persons united with those, or a part of those, in the original transaction, could not change the duties and obligations of the persons intrusted with its affairs. The success of the first venture was the basis of the second, and the funds derived from the first were largely used in carrying through the second. No pretense ivas made of any independence between the two transactions, or that all who were in the first should not be in the second, provided they put up the additional funds needed, and no one interested in the first, outside of the fraudulent scheme involved in the second, was informed of any change in the relations of the parties, until it became necessary to assert that such a change had taken place, in order to defend against the iniquity complained of. The scheme to buy the land of Lewis through an intermediary, and turn it over to the association at an increased price of 024,000, was a fraud upon every member of the association Avho joined in that purchase. The parties to that fraudulent scheme were trustees, and the Circuit Court rightly so held. The remarks of the court on the last page of the opinion in Robbins v. Butler, 24 Ill. 387, are pertinent here. ' There is nothing in the character of the defense that we can discern, recommending it to the favorable consideration of a court of equity. The objections to the form of the decree are not sustainable. The bill is filed by some of a very numerous body of shareholders, to enforce a common benefit in behalf of a class of persons, against a few of their associates who are specially charged with fraud, and as such is maintainable. The distribution of the fruits, by way of money, of the decree, is the question for which the court would always be open. Cockburn v. Thompson, 16 Vesey, Jr., 327. The decree of the Circuit Court will be affirmed. Decree affirmed.