Union Trust Co. of New York v. Chicago & L.H.R. Co.
| Decision Date | 06 June 1881 |
| Citation | 7 F. 513 |
| Parties | UNION TRUST CO. OF NEW YORK v. CHICAGO & LAKE HURON R. CO. |
| Court | U.S. District Court — Eastern District of Michigan |
This was a petition by the holder of a receiver's certificate for payment from the proceeds of the sale of the Chicago & Lake Huron Railroad in the hands of the court. The facts of the case were, substantially, that on the twenty-fifth of June, 1877, the court made an order, by which, after reciting that William L. Bancroft, the receiver of the road, was largely indebted to various parties, and that no means existed to pay off and reduce said indebtedness, but that the same could be paid by the sale of receivers' certificates, the receiver was authorized and empowered to make, sell, and issue his receiver's certificates for the purpose aforesaid, to an amount not exceeding the sum of $51,181.19, in such sums as he should deem expedient, payable at not exceeding one year from the date thereof,and bearing interest at not exceeding 10 per cent. per annum; the same to be paid out of the surplus earnings of the western division of said railroad, after paying the operating expenses of said division, and the expenses of maintaining the same, with its equipments; said certificates to be a preferred charge and line, etc., payable before any payments or distribution of the proceeds of sale should be made to the holders of any mortgage
bonds upon said western division, etc. Upon August 22, 1877, the receiver made his certificate for the sum of $2,500, payable to William R. Bowes, or his order, in four months from date with interest at 10 per cent. per annum, payable out of the earnings of the western division of the said railroad applicable thereto. The certificate recited the substance of the order, and stated that it was issued by virtue thereof. The receiver handed it to the payee, Mr. Bowes, for the purpose of negotiation and sale, but gave him private instructions not to sell for less than par without previously advising him. The certificate was disposed of by Bowes. The receiver was never advised of it, and never received any money on account of it. The petitioner Silverman, a banker at Chicago, became the owner of the certificate by purchase, in due course of business, on the nineteenth of September, about a month after its issue, of C. H. Lane, for $1,000. It was when so purchased, indorsed by William R. Bowes, the payee therein named. Lane's name was also indorsed upon it. At the time of the sale, Lane represented himself to be the owner of the certificate. Before purchasing, Silverman had satisfied himself of the genuineness of Bowes' indorsement. There was no evidence as to the amount received by Bowes for the certificate, nor, indeed, whether anything was paid him, nor as to who, if any one, became its holder after Bowes parted with it and before Lane acquired it.
Otto Kirchner, for the petitioner.
H. M. Duffield, H. H. Swan, and H. L. Baker, for the receivership.
The certificate in question is not a negotiable instrument. The order under which it was issued gave the receiver no power to make negotiable paper. The certificate contains no express promise to pay, but is a mere acknowledgement by the receiver of an indebtedness to Bowes' order, payable out of a particular fund, if it be sufficient to pay in full all holders of such certificates, or, if it be not sufficient, then only a pro rata share with other holders. It recites an order limiting the amount of such paper to be issued, and is uncertain both as to the payor and the fact of payment. The mere fact that it is made payable to the order of the payee is immaterial, unless the paper is negotiable in its nature. Railroad Co. v. Howard, 7 Wall. 415; Newbold v. P. & S.R. Co. 5 Bradw. 367, 375.
It is said by the court in Baird v. Underwood, 74 Ill. 176,--
'It enters into the definition of a promissory note that the money must be payable at all events, not depending upon any contingency either in regard to the event, or the fund out of which payment is to be made, or to the parties by or to whom payment is to be made. ' See, also, Dawkes v. Lorane, 3 Wil. 267.
These characteristics are conspicuously absent in the certificate in question. Indeed, it lacks the most essential elements of commercial paper, and we believe the courts of this country have, without exception, held certificates of this nature to be non-negotiable. Stanton v. A. & C.R. Co. 2 Woods, 506; Turner v. P. & S.R. Co. 95 Ill. 134; Bank of Montreal v. C. & C.R. Co. 48 Iowa, 518; Newbold v. P. & S.R....
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