# Merchants Loan & Trust Co. v. Ummach

> Appellate Court of Illinois · February 16, 1923 · 228 Ill. App. 67

URL: https://www.frixlaw.com/law-library/cases/8837755

## Case

- **Full name:** Merchants Loan and Trust Company, Trustee, for use of Caroline Schaaf v. Charles E. Ummach
- **Court:** Appellate Court of Illinois
- **Decided:** February 16, 1923
- **Citations:** 228 Ill. App. 67; 1923 Ill. App. LEXIS 197
- **Precedential status:** Published
- **Opinion:** Dissent by Cohxor
- **Judges:** Cohxor, Thomson
- **Cited by:** 7 later opinions in the Frix Law Library

## Citator (automated)

- No negative treatment found by the automated citator. That is not the same as a confirmation that the case is good law; read the citing cases.
- Full citator and citing cases: https://www.frixlaw.com/law-library/cases/8837755

## Opinion text

Mr. Justice O’Cohxor dissenting: In my opinion,
the judgment of the municipal court of Chicago should be reversed because no recovery can be had on the evidence, which is undisputed, as a matter of law. The written contract on which plaintiff’s claim is predicated was entered into by William S. Edwards and Charles E. Ummach, the defendant, on September 17, 1910, and although plaintiff was not a party to that contract, yet it was made, in part at least, for his benefit, and under the law in this State, as announced in many decisions of the Supreme Court, a person may bring an action on a contract in his own name, although not a party to it even though the primary object of the contract was not to benefit the plaintiff, and it is not necessary in such case that any consideration move from the plaintiff to the defendant. Nor does the law require that before plaintiff can recover in the instant case it must appear that Edwards, at the time he made the contract in question, was personally indebted to the plaintiff. That element is proper to be considered in construing the contract itself, but there is no . reason in law why Edwards, in selling his interest in the company to Ummach, might not require the latter, as a part of' the consideration, to personally pay the notes in question.
It is earnestly contended by the defendant that the court erred in excluding evidence offered by him tending to show that at and before the time the contract in question was executed it was specifically stated by Edwards that the defendant, under the contract as written,. would not be required to pay the notes in suit. A great many authorities are cited which lay down the rule in unlimited terms that the parol evidence rule has no application in a suit brought by a person who is not a party to the contract, but it is clear that this statement is inaccurate, because where a third party bottoms his case on the contract, the parol evidence rule applies, and the authorities cited in the majority opinion clearly sustain this proposition. The court’s ruling in this respect was not erroneous.
I am in accord with the majority opinion in all the propositions of law there announced, and the only matter on which I disagree is the construction of the contract itself. In my opinion, a careful consideration of the contract, construed in the light of attendant circumstances, leads to the conclusion that the defendant is not personally liable on the notes in question. It must be borne in mind that the contract specifically states that “Edwards has this day exhibited to said Ummach that certain agreement entered into on the 11th day of March, 1908, by and between Caroline Schaaf, et al., individually and as executors of the Last Will and Testament of John Schaaf, deceased, as parties of the first part, and W. S. Edwards Mfg. Co., a corporation of the State of Illinois, as second party, and the undersigned William S. Edwards as a third party thereto, under and by which said contract the said Edwards acquired certain interests in and to certain of the shares of the capital stock of said W. S. Edwards Mfg. Co.” So that in construing the contract in question, we must keep in mind the Schaaf contract. When the Schaaf contract was made in 1908 the Schaafs owned 244 shares of the stock and Edwards the balance, 256 shares, and the Schaafs held the company’s note for $49,642.36. The company was in a bad way financially and to tide the matter over, and in an endeavor to serve the best interests of all the parties, an agreement was entered into whereby the Schaafs turned in their shares of stock and their notes, and a new certificate for all of the stock was then issued to Edwards. The Schaafs received $2,000 in cash and notes for the par value of their shares of stock, $24,400 and the balance of the $49,000, or a total of $27,042.40. The cash payment and the notes were given by the company and not by Edwards. These notes matured at different times and for different amounts, the last maturing January 1, 1916. The new stock certificate was issued to Edwards for the entire capital stock of the company. It was indorsed in blank by him, and the notes together with the stock certificate were placed in' escrow with the Merchants Loan and Trust Company Bank. The notes did not bear interest until after maturity. Edwards then had complete control of the company and proceeded to conduct its business until he sold out his interest and entered into the contract with Ummach September 17, 1910. During that time the company paid the notes as they came due. The contract further provided that until the notes were all paid Edwards’ salary should not exceed five per cent per annum of the gross sales of the company; that when the notes were all paid by the company a charge might'be made by the company against Edwards- for the $24,400; that the expense of the trusteeship should be paid by the Schaafs, except that in case of default in the payment of any of the notes and expense was thereby .incurred, this should be borne by the company. It is perfectly clear that Edwards was not personally liable on the notes and, indeed, this was admitted on the trial by plaintiffs. Nor did he personally pay any part of the consideration. It was all borne by the company, and the only time he would be liable would be after the notes were all paid and then, under the agreement, the company would have a claim against Edwards for the 244 shares of stock, or $24,400.
The evidence shows that Ummach was interested in a business which was a competitor- of the Edwards company. He entered into the contract in question with Edwards September 17, 1910. By the terms of this agreement Ummach was to pay Edwards for the latter’s interest in the Edwards company $30,000. $5,000 was paid in cash and Ummach gave his three notes for the remaining $25,000. The first of these notes for $5,000 was due on or before March 1, 1911. Another note for the same amount was due on or before October 1, 1911, and the third note, for $15,000 matured on or before three years after date. All of the •notes bore interest at the rate of 6 per cent per annum. That contract, after referring to the Schaaf contract, provided that “Edwards has this day bargained and sold unto said Ummach all and singular his right, title and interest in all and very share of the capital stock of said W. S. Edwards Mfg. Co., subject to said ‘Schaaf contract,’ and said Ummach shall and will perform from this time forward all obligations of said Edwards or said corporation under said ‘Schaaf contract. ’ ” That contract was drawn by Edwards’ attorney, and it further provided that the records of the company should be made to show that Ummach was succeeding to all the rights of Edwards in the company, and as its president and treasurer.
At that time the company owed some bills other than the Schaaf notes, and there was also a number of parties that were indebted to the company, and the contract provided that all the bills receivable by the company were to be turned over and become the property of Edwards, and he was to pay all of the debts of the company other than the Schaaf notes as of the close of business on the day the contract was made. In this respect, the contract states: “It is further agreed between the parties that said corporation shall assign and transfer to said Edwards all and singular the bills and accounts receivable of the said corporation as the same appear on the books thereof at the close of business on this day, and said Edwards shall and will pay and discharge and hereafter indemnify and save harmless both said corporation and said Ummach from any further obligation or liability whatsoever for any bills or accounts owing and payable by said company as shown by its books at the close of business on this day, or as heretofore otherwise disclosed to said Ummach, including the liability for rent due under the lease upon the premises occupied by said corporation at No. 21 East Lake street, Chicago, Illinois, or as shall not be shown by its books whatsoever, except that said Ummach shall pay the notes referred to in the said ‘Schaaf contract’ and shall likewise on his own part indemnify and save harmless the said Edwards from any further liability on account of said notes of the said ‘Schaaf contract,’ or through or by or under it or them.” Then follow paragraphs 4 and 5 of the contract which have to do with matters not pertaining to the question before us. Paragraph 6, which is the last, provides 1 ‘ The intent and purpose of this agreement is that said Ummach shall step into the shoes of said Edwards as the owner of the entire capital stock of said company, subject to and assuming all burdens to which the same is subject under said ‘Schaaf contract,’ and performing the same, as of the close of business today, for the purchase price of Thirty Thousand Dollars ($30,000) in cash and notes, as hereinbefore set out, and the said Edwards taking all accounts and bills due the company and paying all book liabilities of the company.”
Edwards was not personally liable on the notes. This was conceded on the trial, as indeed it must be under the evidence. No reason is apparent from the record, nor is there any suggestion made in the briefs filed by plaintiffs, why Ummach should personally assume to pay the notes other than the terms of the written contract itself. Normally Edwards, who was not personally liable on the notes, would not want Ummach personally to assume them because in that event Ummach would pay Edwards less for his interest in the company. Nor do I think that when the contract is, carefully considered that it can be held that Ummach assumed any personal liability on the notes. But it is said that the contract expressly states “said Ummach shall pay the notes referred to in the ‘Schaaf contract,’ ” and that these words are plain and unambiguous. If these words were taken from the context, the argument would be sound, but we are not at liberty to do so. They should be considered in connection with the entire contract. What the parties were attempting to say and, in my opinion, what they did say, was that Edwards was to sell all of his interest in the company to Ummach for $30,000; that all of the bills receivable by the company on that date were to be turned over to Edwards as his property; that in consideration Edwards was to pay all of the bills and accounts due by the company except the Ummach notes, because the contract, after providing that the bills payable should be turned over to Edwards, provides that Edwards must pay all bills and accounts owing by the company, including rent, except the Schaaf notes. Edwards wanted to make it clear that he was not agreeing to pay the Schaaf notes. This further appears from that part of paragraph 6 quoted. That paragraph purports to be a summary of what has gone before. It says the intent and purposes of the agreement is that Ummach shall step into the shoes of Edwards “as owner of the entire capital stock of the company” but subject to the liability of the Schaaf contract. If it was the intent and purpose, as stated in this paragraph, that Ummach was to step into the shoes of Edwards, then Ummach was not liable for the notes because Edwards was not so liable. But to hold Ummach liable here, the contract must be construed to mean that Ummach not only stepped into Edwards’ shoes, but that he assumed something in addition, viz., the Schaaf notes. In this connection it must be remembered that the corporation, after the Schaaf contract was made, was practically a one-man company, viz., Edwards, and when he sold out and entered into the contract in question with Ummach, it was still a one-man company, viz., Ummach. Upon a careful consideration of the record I am clearly of the opinion that plaintiff’s claim in this case, based upon the Ummach contract, is an afterthought, because one of the Schaafs testified that in the Spring of 1914, which was several months before the company became bankrupt, Ummach came to him and stated that he was tired borrowing money to pay the notes, but that if the Schaafs would take $10,000 for the amount remaining due on the notes in full, he would borrow that amount and pay, and that the Schaafs replied to Ummach referring him to their lawyer. This evidence was introduced by the plaintiff tending to show that Ummach at that time considered himself personally liable. Ummach denied this by stating that he referred to the company and not to himself personally. The company went into bankruptcy in December, 1914, and the Schaafs, by their counsel, prepared and filed their claim in the bankruptcy court, wherein it was stated under oath that they had no security for their claim and it was accordingly allowed as the claim of a general creditor. It is perfectly plain that under the bankruptcy law the claim could not have been there allowed as a general unsecured creditor had it appeared that Ummach was liable on the notes. From this it clearly appears that plaintiff, who was represented by able counsel, did not consider that Ummach was liable to pay the notes until long after the filing and allowance of the claim in the bankruptcy proceedings. While plaintiff, of course, would not be estopped by these facts, yet it is evidence that should be considered in construing the contract in question. Edwards appears to have died before the suit was brought.
In my opinion, a careful consideration of the record warrants the conclusion that Ummach is not liable in this case and that the judgment should be reversed.

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Source: Frix Law Library, https://www.frixlaw.com/law-library/cases/8837755. Public record. Not legal advice.