Paine v. Sheridan Trust & Sav. Bank

• Decision Date: 05 February 1931
• Docket Number: No. 20147.,20147.
• Citation: 342 Ill. 342,174 N.E. 368
• Court: Illinois Supreme Court
• Parties: PAINE et al. v. SHERIDAN TRUST & SAVINGS BANK.

342 Ill. 342

174 N.E. 368

PAINE et al.

v.SHERIDAN TRUST & SAVINGS BANK.

No. 20147.

Supreme Court of Illinois.

Oct. 25, 1930.

Rehearing Denied Feb. 5, 1931.

Error to Second Branch Appellate Court, First District, on Error to Circuit Court, Cook County; John R. Caverly, Judge.

Suit by William A. Paine and others against the Sheridan Trust & Savings Bank. Judgment for defendant was reversed by the Appellate Court (255 Ill. App. 250), and defendant brings certiorari.

Affirmed.

Kirkland, Fleming, Green & Martin, of Chicago (Weymouth Kirkland, Charles F. Rathbun, and William H. Symmes, all of Chicago, of counsel), for plaintiff in error.

Poppenhusen, Johnston, Thompson & Cole, of Chicago (Floyd E. Thompson and Henry Jackson Darby, both of Chicago, of counsel), for defendant in error.

STONE, J.

This cause is here on certiorari to review the judgment of the Appellate Court for the first district, reversing, with a finding of facts, a judgment entered in the circuit court of Cook county against defendants in error. Defendants in error brought a suit in assumpsit against plaintiff in error to recover the proceeds of a check accepted by plaintiff in error in payment of the indebtedness of one Collum, a cashier of defendants in error. Paine, Webber & Co., is a copartnership doing a brokerage business, buying and selling securities. In its employ as cashiers were C. Edgar Carlson and Joseph J. Collum. Carlson had charge of the collateral and cashier's cage, and Collum was his assistant. Both had authority to sign checks for the brokerage company, but checks signed by them were required to be signed by either N. J. O'Brien, resident partner of the firm, Walter Brunton, head bookkeeper, or C. J. Bridgen, office manager. In December, 1926, Carlson, for Collum, borrowed from plaintiff in error $5,500, giving his note therefor,secured by 600 shares of preferred stock of the Julian Petroleum Corporation, which stock belonged to Collum. In January, 1927, Collum borrowed a like amount from plaintiff in error bank, and pledged as security for his note an additional 600 shares of preferred stock of the Julian Petroleum Corporation. From time to time thereafter Collum made payments on both of these notes by cash or by his personal check. On May 10, 1927, there remained on each note a balance of $1,650. On that day the plaintiff in error bank notified Collum by telephone that this total balance of $3,300, with $3.85 interest, must be paid, as the market value of the collateral was declining. Collum replied that, if the bank would send the notes and collateral to him at the cashier's cage of Paine, Webber & Co., he would give a check for the full amount due. On the next morning plaintiff in error, by its messenger, delivered to Collum at the cashier's window, as directed, the two notes and certificates of stock, and Collum delivered to the messenger a check on Paine, Webber & Co.'s check form and drawn on the Standard Trust & Savings Bank in the sum of $3,303.85, with Sheridan Trust & Savings Bank, plaintiff in error, as payee. This check was signed, ‘Paine, Webber & Company, Walter Brunton, C. E. Carlson.’ It was cashed through the clearing house by plaintiff in error, and the proceeds applied to the payment of the balance due on Collum's notes and interest. On the day this check was drawn, Paine, Webber & Co. was indebted to plaintiff in error in the sum of $1,058.97, and this indebtedness was on that day paid by another check of defendants in error. Except for the signatures, the check here involved was in the handwriting of Collum. The check register of Paine, Webber & Co. showed it to have been issued in payment of 100 shares of Warner-A stock. On May 12, 1927, during an audit of defendants in error's Chicago office, one Kelley, the auditor, discovered an irregularity in Collum's accounts. An investigation was commenced, and on May 13 Collum confessed to O'Brien that he was short in his accounts. He did not explain the issuance of the check involved here until it was discovered, some days later, that it was not given in payment of Warner-A or other stock, but was paid to plaintiff in error bank, whereupon he explained that it was given to pay his personal indebtedness. On June 6, 1927, defendants in error, by their attorney, wrote plaintiff in error, advising it of the discovery, and requested information as to the circumstances under which the check was used by Collum to pay his personal obligation and demanded that plaintiff in error return the proceeds of the check. The return of the proceeds was refused and on June 25 this action was commenced.

The trial court found the issues in favor of plaintiff in error, and dismissed the action at defendants in error's costs. On appeal to the Appellate Court, that court reversed the judgment of the lower court, and rendered a judgment for defendants in error in the sum of $3,303.85 and legal interest thereon from June 6, 1927. That court also entered the following finding of facts: ‘We find as facts in this case that Collum, plaintiffs' agent and cashier, was not authorized by plaintiffs to use their funds to pay a personal indebtedness of his, and that he was not authorized by them to issue their said check for $3,303.85, payable to the order of defendant bank, and to deliver the same to said bank in liquidation of an indebtedness then owing to said bank by him or by him and Carlson; that defendant bank had notice or was put upon notice of these facts; that plaintiffs never by word, act or deed advised defendant bank or in any way held out to the bank that Collum had any such authority, and that plaintiffs never ratified Collum's acts in issuing and delivering said check.’

Plaintiff in error contends that it was the payee in the check and the holder thereof in due course without any notice of any infirmity or defect in it, and was therefore entitled to receive the same and apply the proceeds to Collum'sindebtedness, and that, as it was an innocent party, and defendants in error put it in the power of Collum to commit the fraud, they should bear the loss.

Sections 52 and 56 of the Negotiable Instruments Act (Cahill's Rev. St. 1929, c. 98, pars. 72, 76) are as follows:

Ԥ 52. A holder in due course is a holder who has taken the instrument under the following conditions:

‘1. That the instrument is complete and regular upon its face.

‘2. That he became the holder of it before it was overdue, and without notice that it has been previously dishonored, if such was the fact.

‘3. That he took it in good faith and for value.

‘4. That at the time it was negotiated to him he had no notice of any infirmity in the instrument or defect in the title of the person negotiating it.

‘§ 56. To constitute notice of an infirmity in the instrument or defect in the title of the person negotiating the same, the person to whom it is negotiated must have had actual knowledge of the infirmity or defect, or knowledge of such facts that his action in taking the instrument amounted to bad faith.’

There is no contention in this case that the check is not complete and regular upon its face or that it was not issued for value. The question to be determined in the case in whether, at the time plaintiff in error bank took the check, it had knowledge of any infirmity in the instrument or defect in the title of the person negotiating it, or...