Turner v. the Peoria

• Decision Date: 18 May 1880
• Citation: 95 Ill. 134,1880 WL 10016,35 Am.Rep. 144
• Parties: ARCHIBALD TURNER et al.v.THE PEORIA AND SPRINGFIELD RAILROAD COMPANY.
• Court: Illinois Supreme Court

95 Ill. 134

1880 WL 10016 (Ill.)

35 Am.Rep. 144

ARCHIBALD TURNER et al.

v.THE PEORIA AND SPRINGFIELD RAILROAD COMPANY.

Supreme Court of Illinois.

Filed at Ottawa May 18, 1880.

OPINION TEXT STARTS HERE

APPEAL from the Appellate Court for the Second District.

Mr. S. D. PUTERBAUGH, for the appellants:

Even if the question was presented of the right of the court to order the issue of the receiver's certificates, the parties are estopped to deny their validity. It appears, from the order of the court directing their issue, that the bondholders, the trustee named in the deed of trust, and all other parties to the suit appeared in court and consented to the order. If, being before the court, they made no objection to the creating of such debt and liens upon the property by the receiver, they can not afterwards object to according priority to the liens so created. Jones' Railroad Securities, secs. 540-543; Kennedy v. St. Paul and Pacific R. R. Co. 2 Dill. 448; Vermont and Canada R. R. Co. v. Vermont Central R. R. Co. 50 Vt. 500; Hoover v. Montclair and G. L. Ry. Co. 29 N. J. Eq. 4; Meyer v. Johnston, 53 Ala. 237.

If the agent of the receiver failed to pay over the proceeds of the certificates it was no fault of the appellants. They were not bound to see to the application of the money received by him. If the agent embezzled the funds the loss must fall on the receiver who appointed him. Stanton v. Alabama and Chattanooga R. R. Co. 2 Wood C. C. R. 506.

The rule is universal that where one of two innocent parties is to suffer, the loss must fall upon the one first in fault. Garvin v. Wiswell, 83 Ill. 216; Gavagan v. Bryant, 83 Id. 376; Stone v. Milliken, 85 Id. 221; Horn v. Nichols, 1 Salk. 289.

A receiver is responsible for any loss which is occasioned to the estate from his wilful default; therefore if he places money received by him in what he knows to be improper hands, the court will compel him to pay it out of his own pocket. 2 Dan. Ch. Pl. and Pr. 1, 439; Kerr on Receivers, 209, 210; High on Receivers, secs. 269, 286; Knight v. Lord Plymouth, 3 Atk. 480; Stanton v. Alabama and Chattanooga R. R. Co. 2 Woods C. C. 506; Kline v. Jewett, 26 N. J. Eq. 474.

It is recited in the certificate that it was issued in accordance with the order of the court on account of indebtedness due Smith, who negotiated the same from the former receiver. Schenck v. Supervisors, etc. 1 Biss. 533; Id. 292; Bolton v. Board of Education, etc. 1 Bradw. 193. A receiver's certificate is negotiable, and when payable to bearer is transferable by delivery, and possesses all the ordinary attributes of negotiable instruments. The purchaser of such a certificate, like the purchaser of a municipal bond, is put upon inquiry as to two points: 1, as to whether there has ever been authority of law by which the certificate has been issued, and 2, as to whether the certificate has been issued by the proper officials and within the scope of their authority. Having ascertained these two points he is bound to go no farther, if the face of the certificate shows that it is valid. 2 Coler on Mun. Bonds, 134; Bissell v. Jeffersonville, etc. 24 How. 287; Comrs. of Knox County v. Aspinwall, 24 Id. 540; Rogers v. Burlington, 3 Wall. 654.

Mr. B. S. PRETTYMAN, and Messrs. HUGHES & BLOOMFIELD, for the Peoria and Springfield Railroad Company:

Equitable securities are taken subject to equities. The case, the court and the authority to issue are printed on the certificates. This alone is sufficient to put a prudent dealer on inquiry. Stanton et al. v. Alabama and Chattanooga R. R. Co. 2 Woods, 513.

The certificate is not in the form required by the court. The decree is mandatory, and not following the decree is not complying with the law and renders such instruments void. Glidden v. Hopkins, 47 Ill. 528.

The receiver can not delegate his trust so as to bind or destroy the fund in court, and if Smith had been an agent to dispose of the certificate, and appellants knew that fact when they accepted the security to secure the private debt of the agent, they became parties to the fraud.

A receiver's certificates have not the quality of negotiable instruments by the law merchant. Stanton v. Alabama and Chattanooga R. R. Co. 2 Woods, 515; Bank of Montreal v. Chicago, Clinton and W. R. R. Co. 48 Iowa, 518; Jones on Railroad Securities, secs. 545, 546. All instruments in writing in this State that are made assignable by the statute are not negotiable, in the sense of cutting off equities when in the hands of innocent holders. Nevill v. School Directors, 68 Ill. 516.

In a suit in equity to foreclose a mortgage, even negotiable instruments indorsed before they are due are taken subject to all equitable defences against them. Olds v. Cummings, 31 Ill. 188; Haskell v. Brown, 65 Id. 29; Thompson v. Shoemaker, 68 Id. 256; Bryant v. Vix, 83 Id. 11.

Mr. L. W. JAMES, and Messrs. HOPKINS & MORROW, for the bondholders and appellee:

Negotiable instruments must have as payor a certain, definite person or corporation capable of giving credit, and of being sued in an action at law. Nichols, Admr. v. Davis, 1 Bibb, 490.

Since the receiver is an officer of court, and all contracts made by him are subject to ratification by the court, it has the undoubted power to vacate or modify any agreement or contract which the receiver has made. High on Rec. sec. 180; Mooney v. B. C. L. Ins. Co. 9 Abb. Pr. (N. S.) 103.

The receiver's certificates are not negotiable instruments, because they are payable only out of a particular fund. Dawkes v. Deloram, 3 Wils. 207; Story on Prom. Notes, sec. 22-25; Parsons on Bills, sec. 43; 1 Daniell on Neg. Inst. secs. 149-155; Janny v. Herle, 2 Lord Raym. 1364; Harriman v. Sanborn, 43 N. H. 129; Averitt v. Booker, 15 Gratt. 163; Corbett v. State, 24 Ga. 287; West v. Foreman, 21 Ala. 400; Mills v. Kuykendall, 2 Blackf. 48; McGee v. Larramoor, 50 Mo. 425; Husband v. Epling, 81 Ill. 172; Baird v. Underwood, 74 Id. 176; Kelly v. Hemingway, 13 Id. 604; Smally v. Edy, 15 Id. 324.

Mr. JUSTICE SCOTT delivered the opinion of the Court:

Many of the principal facts contained in this record appear by stipulation of the parties. On May 22, 1875, under a bill filed by a bondholder, the Peoria and Springfield Railroad Company was placed in the hands of a receiver, who, under the direction of the court, took possession of all the property of the company.

Application was made to the court, by the first receiver appointed, for leave to borrow money with which to make needed improvements indispensable to the preservation of the property and to the profitable running of the road, which was granted, and the receiver authorized to borrow a sum of money, not exceeding $20,000, for the purposes named in the order of the court, to be paid out of the earnings and proceeds of the property after first paying the operatives and employees of the road.

Afterwards, on the 22d day of June, 1875, by another order of the court, the receiver was authorized to borrow $34,646, including the $20,000 specified in the previous order, to be by him expended for the purposes, and no other, expressed in the order of June 14, 1875, and in his concurrent application, for a period of not less than one nor more than five years, with interest not exceeding ten per cent per annum, and for which he was authorized to issue to the person or persons from whom he should borrow the money his certificate as such receiver, the form of which was prescribed by the court, and that it should express on its face to whom it was issued, on what account, and that it was issued by order of the court,--a copy of which order was required to be printed on the back of the certificate.

The money to be borrowed by the receiver under this order was to be a first lien on the income, revenues and earnings of the railroad company after deducting therefrom the operating expenses, and on all other property of the company, real and personal. It was made the duty of the receiver from time to time to report his acts and doings to the court, and so soon as he should borrow any money to report to the court the person or persons from whom it was obtained, the time of payment, and the rate of interest to be paid. On the resignation of the first receiver another one was appointed by the court, who was required to give bond in the sum of $50,000, conditioned for the faithful performance of his duties as such receiver.

It was made to appear that the indebtedness incurred by the first receiver remaining unpaid amounted to about $100,000, and that the receiver just appointed was unable to meet such indebtedness from the current earnings of the road, and thereupon it was ordered by the court that the receiver issue certificates of indebtedness for any outstanding valid indebtedness of the late receiver, or to borrow a sufficient sum of money with which to pay such indebtedness, on such time as he should deem proper, not exceeding two years, and at a rate of interest not exceeding ten per cent per annum, payable semi-annually.

The amount of such certificates was limited to the present indebtedness of the late receiver, and was not to exceed $100,000, and to be used for the purpose of liquidating such indebtedness, and for no other purposes. The form of the certificate the receiver was authorized to issue was prescribed. It was to be made payable to the party to whom it was to be delivered, or his order, and a copy of the order of the court authorizing the issuing of such certificates was required to be printed on the back thereof.

On the 7th of October, 1878, Archibald Turner and Joseph S. Decker filed their intervening petition in the original cause wherein the receiver had been appointed, in which they represented to the court that they were the bona fide holders of a certificate of indebtedness issued by the second receiver of the effects of the railroad company, dated November 20, 1877, payable on or before the 20th day of August, 1878, for the sum of $5,000,...