Chicago Dist. Elec. Generating Corp. v. Evans

• Decision Date: 21 November 1946
• Docket Number: 17495.
• Citation: 69 N.E.2d 627,117 Ind.App. 280
• Parties: CHICAGO DIST. ELECTRIC GENERATING CORPORATION v. EVANS.
• Court: Indiana Appellate Court

69 N.E.2d 627

117 Ind.App. 280

CHICAGO DIST. ELECTRIC GENERATING CORPORATION v. EVANS.

No. 17495.

Appellate Court of Indiana, in Banc.

November 21, 1946

Appeal from Lake Superior Court, No. 3, Fred A. Egan, Judge.

Action by Charles Evans, Jr., against Chicago District Electric Generating Corporation to recover on a bearer bond.From a judgment for plaintiff, the defendant appeals.

Judgment modified, and as so modified, affirmed.

Richard P. Tinkham and John F. Beckman, Jr. both of Hammond (Louis L. Dent, of Chicago, Ill., of counsel), for appellant.

Frank L. Greenwald, of Gary, and Eliot H. Evans of Chicago 6, Ill for appellee.

CRUMPACKER Judge.

The appellee is the owner and holder of a bearer bond in the principal sum of $1,000 executed by the appellant as one of a series of similar bonds evidencing a total debt of $15,000,000 secured by a mortgage or trust deed to the Continental Illinois National Bank & Trust Company and Frank F. Taylor, trustees.Upon learning that the series of bonds, of which his was one, had been called for payment by the appellanthe presented said bond to the said trustees who refused to pay the same.He thereupon brought this suit which is an action to recover on said bond, against the appellant as the maker thereof.In defense the appellant contends (1) that it has paid the bond sued on, and (2) that the appellee is not a holder thereof in due course because at the time he acquired said bond he had notice that it had been previously dishonored and that the title of the prior holder thereof was defective.

The case was tried to the court upon these issues and resulted in a general finding for the appellee upon which judgment was entered in due course.The appellant predicates error on the overruling of its motion for a new trial which charges (1)the decision of the court is not sustained by sufficient evidence, and (2)the decision of the court is contrary to law.

The transcript of the record presents no factual dispute.On the face of the bond in suit appears the following words: 'This bond is one of the bonds issued and to be issued from time to time under and in accordance with and * * * all equally secured by an indenture of mortgage or deed of trust * * * dated September 1, 1930, given by the Company to the Continental Illinois Bank and Trust Company, as Trustee and Frank F. Taylor, as Co-Trustee, to which mortgage reference is hereby made for a description of the property mortgaged and pledged, the nature and extent of the security, the rights of the holders of said bonds and of the Company in respect to such security and the rights of the Trustee under the mortgage.* * * At the option of the Company and upon notice and in the manner and with the effect provided in the mortgage, any of all of the bonds of Series A, of which this is one, may be redeemed by the Company * * *.'(Italics ours.)

The mortgage above referred to contains the following provisions: 'Article V, Section 3.Notice of redemption having been given as provided in Section 2 of this article, and a sum in cash sufficient to redeem the bonds so called for redemption having been deposited with the Trustee on or before the redemption date, the bonds so called, or the specified portions thereof, shall, on the date designated in such notice, become due and payable at said office of the Trustee at the redemption price stated in such bonds; * * *.'

'Article XII.* * * Bonds for the payment or redemption of which money shall have been set apart by or paid to the Trustee shall be deemed to be paid within the meaning of this article. * * *'

'Article I, Section 13.* * * Upon receipt by the Company and the Trustee of evidence satisfactory to them of the loss or destruction of any outstanding temporary or definitive bond hereby secured, and of indemnity satisfactory to them, or in case of the mutilation of any such outstanding bond, upon surrender and cancellation of such bond and upon receipt of indemnity satisfactory to them, if requested, the Company in its discretion may execute, and the Trustee may authenticate and deliver, a new bond of the same series, maturity date and denomination and of like tenor, and bearing the same issue number (to which the Trustee may add a distinguishing mark), in lieu of such lost, destroyed or mutilated bond, as the case may be. * * *'

The bond in suit was originally issued to the Farmers Mutual Automobile Insurance Company of Madison, Wisconsin, who reported to the trustees, early in July, 1933, that it had been stolen and asked that payment thereof be stopped.A record of 'payment stopped' was made by the trustees and in 1936 a duplicate bond was issued to the American Bonding Company who presented an assignment of all interest therein from the Farmers Mutual Automobile Insurance Company, the original holder.This duplicate bond was issued pursuant to Article I, Section 13 of the mortgage as above set out and upon receipt of indemnity satisfactory to the trustee.It was identical to the original, including its serial number, but bore a secret mark so it could be distinguished therefrom.The entire issue was called for payment on January 9, 1939, and the trustees received from the appellant, some time prior thereto, a sufficient sum of money to pay the entire principal sum borrowed together with premium and interest to the call date.When this money was disbursed by the trustee the duplicate bond was paid upon presentation as the stolen original was still missing.

From July 2, 1933, to September 9, 1933, the appellee was in the investment securities business with offices at 11 South LaSalle Street, Chicago.Sometime during that period he bought the bond in suit from a man with whom he had never done any business previously--a 'fly-by-night broker'--whose name he never knew.The appellee, at the time, was doing considerable business with this type of broker who made a practice of buying tax anticipation warrants and other securities from school teachers and contractors who needed or wanted immediate cash.Before completing the transaction the appellee called a Chicago Bond house and learned that the market on the bond in controversy was '72 bid and 75 asked,' and thereupon bought it for cash at either 70 1/2 or 71 1/2.

On September 9, 1933, he borrowed $10,000 from one Simms McGuire on his promissory note and posted this bond with others as collateral security therefor.During the course of the years that followed he reduced this loan to $1,000 and in September, 1943, he learned for the first time that the bond in question had been called and he thereupon suggested to McGuire that he present it to the trustees for payment and use the money to pay the balance of his note.This McGuire did but the bond was returned to him unpaid with a letter from the Continental Illinois National Bank and Trust Company, one of the trustees, a part of which we quote as follows: 'When the bonds of this issue were called for redemption funds were deposited with us by the corporation for the payment of the new bond issued upon the filing of the bond of indemnity.That bond has been surrendered and paid and, accordingly, no funds are on deposit for the payment of the bond you hold.'

The appellee shortly thereafter paid the balance due on his note to McGuire and the bond was returned to him and is now in his possession.

In support of its claim of payment the appellee asserts that according to the express terms of the mortgage under which the bond sued upon was issued, the trustees were constituted the bondholders' agents and not the agents of the maker and mortgagor, so that the appellant, by paying to said trustees on redemption the principal amount of its loan in full together with the premium and interest to the call date, fully discharged its liability on the bond in suit.

Three principles of law, pertinent to the question, are definitely established in Indiana and in other jurisdictions to the extent that they may be considered general rules: (1) When one buys a bond which states on its face that it is one of a...