O'Connell v. Chicago Park Dist.

• Decision Date: 12 June 1941
• Docket Number: No. 25848.,25848.
• Citation: 376 Ill. 550,34 N.E.2d 836
• Parties: O'CONNELL v. CHICAGO PARK DIST. et al.
• Court: Illinois Supreme Court

376 Ill. 550

34 N.E.2d 836

O'CONNELL

v.CHICAGO PARK DIST. et al.

No. 25848.

Supreme Court of Illinois.

April 10, 1941.

As Modified on Denial of Rehearing June 12, 1941.

Suit by William L. O'Connell, as receiver of West Englewood Trust & Savings Bank against the Chicago Park District and others for damages for conversion of securities. Upon the death of the plaintiff, Charles H. Albers, successor receiver, was substituted as plaintiff. The suit was consolidated with suit by the Armitage State Bank, the West Town Trust & Savings Bank, the Bryn Mawr State Bank, the West Highland State Bank, the Chicago Lawn State Bank, the Chatham State Bank, the Brainerd State Bank, the Auburn Park Trust & Savings Bank and the Ridge State Bank against the same defendants. From a judgment of Appellate Court for the First District, 305 Ill. App. 294, 27 N.E.2d 603, affirming judgments dismissing the suits, the plaintiffs appeal.

Affirmed.

FARTHING and MURPHY, JJ., dissenting.Appeal from Third Division, Appellate Court, First District, on appeal from Superior Court, Cook County; Francis B. Allegretti, Judge.

Daily, Dines, White & Fiedler, of Chicago, for appellant.

John O. Rees, of Chicago (Philip A. Lozowick, of Chicago, of counsel), for appellee Chicago Park Dist.

Harold V. Arnberg, Homer J. Livingston, and Taylor, Miller, Busch & Boyden, all of Chicago (Francis F. Busch, and John S. Miller, both of Chicago, of counsel), for appellee First Nat. Bank of Chicago.

STONE, Justice.

William L. O'Connell, as receiver of the West Englewood Trust and Savings Bank, the Armitage State Bank, the West Town Trust and Savings Bank, the Bryn Mawr State Bank, the West Highland State Bank, the Chicago Lawn State Bank, the Chatham State Bank, the Brainerd State Bank, the Auburn Park Trust and Savings Bank and the Ridge State Bank, respectively, instituted separate suits in the superior court of Cook county against the Chicago Park District, successor of the South Park Commissioners, and the First National Bank of Chicago, successor of the First Union Trust and Savings Bank. The first three counts of each complaint ask judgment against the defendants for damages for the conversion of securities pledged by the particular bank as security for deposits of the South Park Commissioners. The fourth count asks judgment against the park district for money had and received by the South Park Commissioners as proceeds of the sale of the securities. Upon the death of O'Connell, Albers, as successor receiver, was substituted as plaintiff, the causes were consolidated, and a bill of particulars was filed in each case. On motion of appellees, the causes were dismissed on the ground that the five years' Statute of Limitations barred the actions. The judgment was affirmed by the Appellate Court for the First District, upon appeal under an agreed case and certification of the question of law whether under the facts alleged in the complaints, the actions were barred by the statute. The cause is here on leave granted to appeal.

The agreed case and certification of the question of law set out the complaint and the bill of particulars in the case involving the West Englewood Trust and Savings Bank. It was therein stated that, except as to amounts, description of the securities involved, the names of the particular banks and history of the same, each of the other nine complaints, for the purposes of the appeal, set forth the same facts and the same claims for recovery. The same question of law is the only issue presented for our determination.

The pertinent facts alleged by the complaint in the West Englewood Trust and Savings Bank case are: On July 22, 1930, the South Park Commissioners had $125,000 on deposit in the bank, which turned over to the depositor $75,000 in certain bonds owned by the bank, as a pledge to secure the deposit, $62,500 of which still remained on deposit at the time the bank was closed on June 9, 1931. On the next day, June 10, 1931, the First Union Trust and Savings Bank, at the direction of the South Park Commissioners, and as its agent, with knowledge that the bonds had been so pledged, sold them for $63,069.49, of which sum it paid the South Park Commissioners $62,500, and the balance of $569.40 to the Auditor of Public Accounts. The suit was instituted on June 4, 1936, which was more than five years after the pledge, and less than five years after the sale. The bill of particulars sets out, as to each count, that there was not, within the knowledge of the plaintiff, any agreement, either written or oral, pursuant to the terms of which the bank turned over the bonds, except such implied argeement as arose out of the deposit and the delivery of the bonds to secure its repayment.

The determinative issue is the question as to when the Statute of Limitations began to run. Appellant claims the complaint sets out three separate and distinct causes of action: (1) A cause of action against the South Park Commissioners (now the Chicago Park District) for conversion of the pledged bonds; (2) a like cause of action against the First Union Trust and Savings Bank (now the First National Bank of Chicago); (3) a cause of action against the South Park Commissioners (now the Chicago Park District) for money had and received from the sale of the pledged bonds. He contends that no cause of action arose under the first subdivision until the bonds were sold because there was no conversion until the sale was made; that there was no cause of action against the First Union Trust and Savings Bank before the sale, because it had no connection with the transaction prior to that time, and that no cause of action could arise under the third subdivision until the money from the sale was received by the South Park Commissioners. Appellees contend the pledge was void ab initio and started the running of the statute eo instanti.

In Knass v. Madison and Kedzie State Bank, 354 Ill. 554, 188 N.E. 836, and People v. Wiersema State Bank, 361 Ill. 75, 197 N.E. 537, 101 A.L.R. 501, it was held that a pledge of securities by a bank to secure repayment of a deposit is ultra vires-that is to say, outside the object of its creation and beyond the powers conferredby the legislature; that parties dealing with banks are chargeable with notice of the limitations of their powers; that such a pledge is not only voidable but wholly void and of no legal effect; that it cannot be ratified, because it could not have been legally made; that no performance by the parties can give it validity or become the foundation of any right of action upon it, and that neither party is estopped by assenting to it or by acting upon it to show that it was prohibited. To the same effect are People v. Cairo-Alexander County Bank, 363 Ill. 589, 2 N.E.2d 889, and City of Marion v. Sneeden, 291 U.S. 262, 54 S.Ct. 421, 78 L.Ed. 787. The question of the application of the Statute of Limitations was not involved in either of those cases.

Appellant claims that even though a pledge is ultra vires, no suit for conversion could be maintained against the pledgee until there had been a demand for and refusal of the return of the property, or until the pledgee asserted an adverse claim of title or made a sale of the pledged property, and that possession by the pledgee with the consent of the owner is not tortious, even under an illegal agreement, and cannot be treated as a conversion. The law as to such transactions is succinctly stated in 6 American Jurisprudence, Bailments, p. 207, § 82, where it is said: ‘As in the case of ordinary contracts, a contract of bailment, to be valid and enforcible, as between the parties, must not be in violation of law or based upon an illegal or fraudulent transaction, but if the property has been turned over to the bailee in conformity with such an agreement, the illegality of the contract does not work a forfeiture thereof or make the party who received the property any less a bailee under obligation to return the thing bailed in good condition. Under such circumstances the obligation may be regarded as one imposed by law, springing out of the fact of possession of another's property, and its violation sounds in tort, or in quasi contract upon a contract implied in law, and not upon the illegal transaction between the parties.’ This rule is pronounced in Hall v. Corcoran, 107 Mass. 251, 9 Am.Rep. 30;State v. Bunton, 314 Mo. 585, 285 S.W. 97, 47 A.L.R. 783;Parker v. Latner, 60 Me. 528, 11 Am.Rep. 210; Woodman v. Hubbard, 25 N.H. 67, 57 Am.Dec. 310;Smith v. Rollins, 11 R.I. 464, 23 Am.Rep. 509. It is pointed out in Carter v. Allenhurst, 100 N.J.L. 138, 125 A. 117, 34 A.L.R. 759, that the rule above quoted is bottomed on the principle that the contract itself is illegal and does not apply to contracts not in themselves illegal, as where a statute prohibits contracts made on Sunday. Under this doctrine the duty of the pledgee to return the property arose immediately upon its illegal pledge, and the violation of that duty sounded in tort. The author also points out that in some jurisdictions it is held that the illegality of the contract does not make the holder any less a bailee with a duty to turn over the thing bailed. The authorities there cited do not deal with the matter of limitations as to time in which action to compel return shall be brought.

Appellant loses sight of the right of the bank, before the securities were sold, to recover them in an action against the pledgee. Under like circumstances, in Texas & Pacific Railway Co. v. Pottorff, 291 U.S. 245, 54 S.Ct. 416, 420, 78 L.Ed. 777, Mr. Justice Brandeis, in the opinion of the court, said: ‘The bank itself could have set aside this transaction. It is the settled doctrine of this court that no rights arise on an ultra vires contract, even though the contract has been performed; and that this conclusion cannot be circumvented by erecting an estoppel which would prevent challenging the legality of a power exercised.’...