Court Opinion

ID: 9738017
Source: CourtListenerOpinion
Date Created: 2023-08-26 19:40:38.417806+00
Date Added: 2024-06-11T07:24:03.249845
License: Public Domain

Additional Opinion on Rehearing On petition for rehearing plaintiffs raise for the first time the defense of mistake of law and fact to the accord and satisfaction which we held was a bar to the claims of plaintiffs in Group II. As the defense presents the question whether, upon the uncontested facts before us, the defendant will be unjustly enriched $500,000 or more at the expense of former holders of 5,874 certificates of beneficial interest, we granted a rehearing and oral argument.  Defendant contends that the defense of mistake is not open for consideration. It says that nothing in the pleadings “suggests a mistake of law or fact by any party. No facts are alleged from which a mistake could be inferred.” As defendant’s statement indicates, it is not necessary that the complaint should allege in express terms that the certificates were surrendered and canceled through mistake. It is sufficient if it sets up facts from which such a conclusion is inevitable or fairly deducible. Darst v. Lang, 367 Ill. 119. Plaintiffs need not, and should not, state in the complaint any matters of which the court is bound judicially to take notice or is supposed to possess full knowledge. Story’s Equity Pleadings (10th ed.) sec. 24. In testing the sufficiency of a pleading we consider the averments of the pleading and the pertinent facts of which courts take judicial notice, although not pleaded (People v. Snyder, 279 Ill. 435; 41 Am. Jur., Pleading, sec. 244); or, as held in James v. Unknown Trustees, etc., of Three-In-One Oil & Gas Co., 203 Okla. 312, 220 P.2d 831, the pleadings should be read as incorporating everything of which the courts take judicial notice, though not alleged. Finally, the complaint should be construed liberally, with a view to doing substantial justice between the parties. (Civil Practice Act, sec. 33, subpar. 3 [Ill. Rev. Stats. 1953, ch. 110, § 157, subd. (3); Jones Ill. Stats. Ann. 104.033, subd. (3)].) . It is alleged in the complaint that defendant sent to each certificate holder the letter of December 15, 1948 (an exhibit to the complaint) in which it construed the certificates of beneficial interest as providing for the repayment of waived deposits “from the liquidation of the assets and out of future earnings of the bank,” and represented to each certificate holder that in passing on a similar agreement the Supreme Court in the case of Logemeyer v. Fulton State Bank, 384 Ill. 11, decided that “the certificates were payable solely out of the money realized from the liquidation of the assets”; that all the assets of the old Kaspar American State Bank had been liquidated, and, “since the Supreme Court decision is binding on us, we are now required to make a final distribution which amounts to 15 per cent of the original sum waived by you. Consequently, your check is now ready at the bank. . . . No check will be delivered without surrender of the certificate. The certificate will be canceled and kept by the bank.” Plaintiffs further allege that the holders of 5,834 (5,874) out of 7,061 certificates originally issued, requested and received the distribution tendered and were required by the bank to and did surrender their certificates; that the bank canceled the certificates; that there was no consideration for the surrender and cancellation of the certificates. Plaintiffs pray that the cancellation of the certificates so surrendered be adjudged and decreed void and of no force and effect. There is also a prayer for general relief. When the foregoing facts are read with the opinion in the Fulton State Bank case of which we take judicial notice, incorporated therein, we find two material facts are misstated in defendant’s letter. The agreements between the defendant bank and its depositors and between the Fulton State Bank and its depositors are materially different, not similar, in that there was no agreement by the Fulton State Bank to repay waived deposits out of future earnings, and the decision in the Fulton State Bank case was not binding on defendant and did not prohibit payment of waived deposits out of future earnings. So far as the complaint and defendant’s answer show, these misstatements were made innocently and in good faith and were accepted as true, without investigation, by the certificate holders. It necessarily follows that the certificates were surrendered and canceled under a mutual mistake of fact, or law and fact.  Whether the mistake is a mistake of law or of fact is not the important question when relief is sought in a court of equity. The generally accepted principle is stated in Reggio v. Warren, 207 Mass. 525, where the court said: “So it has been said that the important question was not whether the mistake was one of law or of fact, but whether the particular mistake was such as a court of equity will correct, and this depends upon whether the case falls within the fundamental principle of equity that no one shall be allowed to enrich himself unjustly at the expense of another by reason of an innocent mistake of law or of fact entertained by both parties.” In Story’s Equity • Jurisprudence (14th ed.) sec. 164, the rule is stated as follows: ' “If nothing more than a bare mistake of law be shown, the relief will rarely, if ever, .be granted. But where it further appears that a party is availing himself of the mistake to enforce an unconscionable advantage, without consideration, and the opposite party is without blame in the premises and the parties can be replaced, respectively, in their former positions, equity will interfere to relieve from such mistake of law.” This is the law in Illinois, Peter v. Peter, 343 Ill. 493; Darst v. Lang, 367 Ill. 119; Barkhausen v. Continental Ill. Nat. Bank & Trust Co. of Chicago, 3 Ill.2d 254, 269-270. Defendant ignores the misstatements in its letter to the certificate holders and bases its case on the unquestioned rule that a compromise of a doubtful right will not be set aside on the sole ground of misapprehension of law. In conformity with this rule we held in the original opinion that the accord and satisfaction pleaded by defendant was a bar to tbe claims of the holders surrendering their certificates. Our attention had not been directed to the defense of mistake now urged, and we overlooked the obvious material difference between the agreements in the instant case and in the Fulton State Bank case and the resulting fact that the statement of the binding effect of the decision in the latter case on defendant was erroneous, as our opinion clearly indicated.  However, as the authorities cited by defendant show, a compromise of a doubtful right is upheld only “when fairly entered into” (Story’s Equity Jurisprudence, 13th ed. (1886) sec. 131), where “there is no fraud, misrepresentation, concealment, or other misleading incident” (3 Pomeroy’s Equity Jurisprudence, 5th ed. (1941) sec. 850), and where neither the defendant nor his attorney made any misrepresentation to the plaintiff of any matter of fact. Stover v. Mitchell, 45 Ill. 213. It is immaterial whether the misleading statements were made innocently or fraudulently. In Engelbrecht v. Engelbrecht, 323 Ill. 208, the defendant, an adopted son of plaintiff’s deceased husband, procured an agreement favorable to himself settling the rights of the parties in the estate of the deceased. After investigation made by his attorneys he represented to plaintiff that she was not the lawful wife of the deceased because there was no record of a divorce from her first husband, John Zech. She employed attorneys to investigate, and they reported to her that there was no record of a divorce. Both attorneys were honestly mistaken, for reasons stated by the Supreme Court, which said (p. 211): “It is admitted by the parties, and the evidence shows, that when the attorneys advised Maria (plaintiff) that she was not legally divorced from Zech they were honestly mistaken. Because of her inability to speak the English language plainly, both attorneys had searched for her name in the records under the letter ‘S.’ In order to grant relief, however, it is not necessary to find that the false representation which induced Maria to execute the agreement was made with fraudulent intent. (Champlin v. Layton, 18 Wend. 407, 31 Am. Dec. 382; 2 Pomeroy’s Eq. Jur. sec. 847.) She signed the agreement which gave to Fred (defendant) property to which he was not entitled, under a misrepresentation which, however innocently made, operated as a fraud on her. It is against conscience for those who led her into the error to insist on the fruits of the contract.” Winkelman v. Erwin, 333 Ill. 636, is especially pertinent. There, as here, plaintiffs accepted without investigation an erroneous statement innocently made by defendant’s agent. In affirming relief granted by the trial court from the transaction induced by the misrepresentation, the Supreme Court said (p. 642): “The mistake cannot be said to be due to the negligence of the appellees. They had no knowledge of the boundaries of the land. Mrs. Thompson represented the appellants. She undertook to make the inquiries necessary to determine the location of the boundaries, and the fact that the appellees accepted her statements, based, as she said, upon the inquiries she had made, would not justify holding them responsible for the consequences of. their common mistake. . . . Mrs. Thompson made no intentional misrepresentation, but her statement led the appellees to believe that the twelve acres were included in their purchase. Under these circumstances the appellees, when they discovered the mistake under which they had entered into the contract, were justified in rescinding it.”  The certificate holders received nothing for the surrender of their certificates. Defendant parted with nothing to get them. The certificate holders lost all right to the 30 per cent of the face amount of the certificates remaining unpaid, and defendant stands to gain $500,000 or more out of profits earned and to be earned (present earnings exceed $343,000). In insisting on retaining tbe fruits of the surrender of the certificates defendant is availing itself of a mistake induced by it to enforce what is called, in Story’s Equity Jurisprudence, hereinbefore quoted, “an unconscionable advantage, without consideration.” Under such circumstances, equity will grant relief. The facts pleaded and the matters of which the court takes judicial notice show a mutual mistake of law and fact in the surrender and cancellation of the certificates, and the defense of mistake is properly raised. Finally, defendant says that relief from the mistake on which the members of Group II rely, like relief from fraud and duress, cannot be made the basis of a class suit, and, that there is a conflict between the members of the two groups in that it is against the interest of Group I that the surrender of the certificates by members of Group II be set aside.  Plaintiffs bring the suit on behalf of themselves and all owners of certificates on December 15, 1948, the day on which defendant declared its inability to make payments from profits. On April 24,1953 (the amended complaint was filed May 11, 1953) the holders of 1,187 certificates (Group I) still retained their certificates, and the holders of 5,874 certificates (Group II) had surrendered their certificates and accepted the 15 per cent dividend tendered as a final payment. Plaintiffs were compelled to join two causes of action —an action to establish the validity of the agreement to pay the certificates out of net profits, and an action for the rescission of the surrender and cancellation of the certificates once held by the members of Group II, a condition precedent to the right of members of that group to join as plaintiffs in the first action. Stephens v. Collison, 249 Ill. 225, 231-232. The action for rescission is a controversy between defendant and members of Group II to which the members of Group I are neither necessary nor proper parties. It is not essential that the parties each have an interest in all the matters involved in a suit. King v. Rice, 285 Ill. 123, 128.  The mere fact that the pro rata share of a participant in a common fund is increased or decreased by the number and amount of claims allowed against the fund, does not, because of conflict of interest between the claimants, bar a class suit to establish the fund. The relation of a certificate holder in the instant case to other holders of certificates, is like that of a creditor of an insolvent bank to other creditors in a class suit to establish the liability of the stockholders. In commenting on such suits the Supreme Court in Newberry Library v. Board of Education of Chicago, 387 Ill. 85, 92, said: “The remedy to be obtained is affected by the amount of constitutional liability of the stockholders and the number and amount of the claims against the bank. In such a case there is not only a community of interest in the subject matter of the suit but likewise in the remedy.” State Life Ins. Co. v. Board of Education of Chicago, 394 Ill. 301, cited by defendant, involved the payment of tax anticipation warrants, the tax collected being insufficient to pay the warrants. The sole controversy was the method in which the fund was to be distributed among the several holders of warrants — whether the warrants should be paid in full in the order of issue until the fund was exhausted, or whether all holders of warrants should share pro rata in the fund. In denying the right to maintain a class suit the court said (p. 310): “Clearly, as to the distribution of the fund, there is a potential conflict of interest between every holder of warrants with every other such holder. They have no common interest in the question of the method of distribution.” Here there is no question of priority of payment of any certificate. Each holder will share pro rata with all other holders. The depositors who signed the waivers and accepted certificates of beneficial interest payable to the individual creditor, acted in furtherance of a common object — the reorganization and reopening of the bank. The waivers were executed “in consideration of the execution of like agreements on the part of other depositors of said bank,” and the certificates are payable “solely out of the future recoveries and net profits . . . from time to time pro rata with other sums for which similar certificates have been issued.” Although each certificate is the separate property of the person holding it, it is payable only out of the common fund— future recoveries and net profits. The’ misrepresentation which induced the mistake from which members of Group II ask relief, was designed to and did procure the surrender by certificate holders of all right to further payments from that fund. The misrepresentation to each certificate holder is identical — the letter of December 15,1948. The average amount unpaid on the certificates surrendered is about $80. The cost of an individual action for rescission is prohibitive and will ensure the permanent retention by defendant of the fruits of the mistake induced by it. Necessity from which the class suit arose requires extension of the procedure to cases like this to prevent a denial of justice. Moreover, benefit from a decree of rescission can come only from individual action of each holder who surrendered his certificate. Plaintiffs pray that the court ascertain, adjudge and decree the persons entitled to participate in the benefits of the decree to be entered and the amount of their respective claims. This will require the filing and proving of claims by the individual holders who have surrendered their certificates, within a time and in the manner fixed by the court. Failure to make this proof will bar all claims of these holders under the decree. The named plaintiffs in Group II are not electing on behalf of the unnamed plaintiffs in this group to receive further payments on each certificate theretofore surrendered. They are merely seeking to establish by decree a condition precedent to the right of themselves and each member of Group II, at his election, to assert his claim against the common fund. Precedent for this procedure is found in Alabama Independent Serv. Station Ass’n v. Shell Petroleum Corp., 28 F. Supp. 386 (Dist. Ct. N. D. Alabama), an action in equity by the association and named members against the defendants to enjoin the violation of antitrust laws and recover damages. The court held that the association could not sue for damages suffered by its members, and said: “We may add that the remaining plaintiffs, as operators of gasoline service stations, may properly remain as plaintiffs, and may sue on behalf of all of the similarly situated parties described in the complaint. . . . However, for the recovery of damages, each member of the class must intervene to assert and prove such damages to himself.” Langson v. Goldberg, 373 Ill. 297, and Morris v. The Broadview, Inc., 328 Ill. App. 267, cited in obiter dictum in our original opinion, are not applicable to the facts in this case. The class action instituted herein to rescind the surrender and cancellation of the certificates because of the mutual mistake of the parties is proper. Except as modified herein, our original opinion and this additional opinion on rehearing will stand as the opinion of the court. The order appealed from is reversed and the cause remanded for further proceedings in conformity with the views expressed therein. Reversed and remanded. BURKE, P. J. and FRIEND, J., concur.