Pflueger v. Broadway Trust & Sav. Bank

• Decision Date: 18 February 1933
• Docket Number: No. 21272.,21272.
• Court: Illinois Supreme Court
• Parties: PFLUEGER v. BROADWAY TRUST & SAVINGS BANK.

351 Ill. 170

184 N.E. 318

PFLUEGER

v.BROADWAY TRUST & SAVINGS BANK.

No. 21272.

Supreme Court of Illinois.

Dec. 23, 1932.

Rehearing Denied Feb. 18, 1933.

Error to First Branch Appellate Court, First District, on Appeal from Circuit Court, Cook County; Craig A. Hood, Judge.

Action by Alexander W. Pflueger against the Broadway Trust & Savings Bank. A judgment for plaintiff was reversed by the Appellate Court (265 Ill. App. 569), and plaintiff brings certiorari.

Affirmed.Fisher, Boyden, Bell, Boyd & Marshall, of Chicago (Thomas L. Marshall and David A. Watts, both of Chicago, of counsel), for plaintiff in error.

Dent, Weichelt & Hampton, of Chicago (Louis L. Dent, of Chicago, of counsel), for defendant in error.

Chapman & Cutler, Tenney, Harding, Sherman & Rogers, and Winston, Strawn & Shaw, all of Chicago (Charles M. Thomson, Horace K. Tenney, and James H. Winston, all of Chicago, of counsel), for Harris Trust & Savings Bank et al., amici curiae.

ORR, J.

An action of replevin was brought by plaintiff in error, Alexander W. Pflueger, in the circuit court of Cook county, against the Broadway Trust & Savings Bank, defendant in error, for the recovery of three $1,000 debenture bonds issued by the Container Corporation of America. There were pleas by defendant in error of not guilty and a special plea alleging that the bonds were payable to bearer and negotiable; that they were negotiated before maturity; and that defendant in error took them without knowledge of any defect of title and became the holder thereof in due course. There was a trial by the court without a jury, resulting in a finding for plaintiff in error and judgment for possession and costs in his favor. From that judgment an appeal was taken to the Appellate Court for the First District, where the judgment of the trial court was reversed, with a finding of fact that the right of property and of possession were in defendant in error and that the debentures were negotiable instruments. This court then granted certiorari to review the action of the Appellate Court.

The material facts as found by the Appellate Court are not in dispute. On December 26, 1926, the defendant in error bank accepted the three $1,000 debentures as collateral security for a seven-day loan of $2,500 made to a customer, Herbert Hoffmeyer, who gave his note for the amount of the loan, which is unpaid. Defendant in error knew that Hoffmeyer was employed by a hotel near its place of business, and before accepting the debentures ascertained, either by published reports or by inquiry, that the debentures were selling at a price of par or better. The trial court found that in accepting the debentures defendant in error acted in good faith and was not negligent. The evidence further shows that plaintiff in error, who was the owner of the debentures, placed them in a safe at 111 West Washington street, from which they were stolen about April 9, 1928, by some unknown person or persons. Eleven days before the debentures were pledged to defendant in error they had been called for payment pursuant to the terms of a certain trust indenture executed by the corporation at the time the debentures were first issued. The first sentence of the writing on the face of each of the debentures is as follows: ‘For value received, the Container Corporation of America, (hereinafter referred to as the company,) a corporation organized and existing under the laws of the State of Delaware, promises to pay to bearer, or, if this debenture be registered, to the registered owner hereof, on June 15, 1936, the principal sum of one thousand dollars and to pay interest thereon from the date hereof at the rate of six per cent. per annum, semi-annually, on December 15 and June 15 in each year.’ Other provisions appear upon the face of the debentures, to the effect that interest due before maturity will be paid only on surrender of the interest coupons; that both principal and interest are payable at the office of the trustee in the borough of Manhattan, city and state of New York, in gold coin, etc., ‘without deduction for any Federal income tax thereon or with respect thereto, not in excess of two per cent. of such interest in any year, which the company or the trustee may be required or permitted to pay thereon or retain or deduct therefrom under any present or future law of the United States of America’; that the debenture is one of an authorized issue of $1,000,000, all issued under a certain trust agreement dated as of June 15, 1926, ‘to which trust agreement reference is hereby made for a statement of the terms under which the said debentures are issued, and the rights and obligations of the company, of the trustee and of the respective holders of the said debentures under the said trust agreement’; that to the extent provided in the trust agreement all rights or action upon the debenture are vested in the trustee. There is a further provision to the effect that recourse for payment of either principal or interest or for claim under the trust agreement may not be had or made against any incorporator, stockholder, officer, or director of the company or of any successor corporation, either directly or indirectly, by virtue of any constitution, statute, provision, or rule of law, ‘all such liability being by the acceptance of this indenture and as a part of the consideration for the issue hereof expressly released, as provided in the said trust agreement.’

Section 29 of the trust agreement states that, except as therein provided, no holder shall have the right to institute any suit, action or proceeding at law or in equity upon or with respect to the agreement or for the execution of any trust or power thereof, or for any other remedy under or upon the agreement or with respect to any of the bonds or interest coupons secured thereby, without first giving to the trustee written notice of an existing default or tendering to the trustee security and indemnity satisfactory to it; nor also unless the holders of 25 per cent. in the aggregate amount of the outstanding bonds shall have requested the trustee, in writing, to take action with respect to such default and the trustee shall have declined to take such action or shall have failed to do so within thirty days thereafter, ‘it being understood and intended that no holder of any bond or interest coupon or claim for interest shall have any right in any manner to enforce any right or remedy hereunder, or under or with respect to any of the bonds, exceptin the manner herein provided, and that all proceedings hereunder shall be instituted, had and maintained in the manner herein provided, and for the equal benefit of all holders of outstanding bonds.’

Each of the debentures provides that it may be redeemed, at the option of the company, upon any semiannual interest date prior to maturity, upon at least thirty days' prior notice published in a daily newspaper of general circulation printed in the English language, published in the borough of Manhattan, city and state of New York, at the price and upon the terms stated. Section 14 of the trust agreement provides that notice having been given and cash for redemption deposited, ‘the said bonds shall on the redemption date designated in such notice become due and payable at the said head office of the trustee.’ There is a further provision that after the date fixed for redemtion the bonds shall cease to bear interest.

The principal question involved is: Were the debentures negotiable instruments? If they were, it is conceded by plaintiff in error that the judgment of the Appellate Court is correct.

Section 1 of the Negotiable Instrument Act (Smith-Hurd Rev. St. 1931, c. 98, art. 1, § 21, p. 1964) provides, among other things, that an instrument to be negotiable must contain an unconditional promise or order to pay a sum certain in money, payable to bearer or a specified person on demand or at a fixed or determinable future time. Section 52 (Smith-Hurd Rev. St. 1931, c. 98, § 72) provides that a holder in due course is one who takes an instrument which is complete and regular upon its face; it must be taken before it is overdue, without notice of previous dishonor; it must be taken in good faith and for value; and at the time it is negotiated the person securing it must have no...