Yound Men's Christian Ass'n Gymnasium Co. v. Rockford Nat. Bank

• Decision Date: 18 April 1899
• Citation: 54 N.E. 297,179 Ill. 599
• Parties: YOUND MEN'S CHRISTIAN ASS'N GYMNASIUM CO. et al. v. ROCKFORD NAT. BANK.
• Court: Illinois Supreme Court

179 Ill. 599

54 N.E. 297

YOUND MEN'S CHRISTIAN ASS'N GYMNASIUM CO. et al.

v.ROCKFORD NAT. BANK.¹

Supreme Court of Illinois.

April 18, 1899.

Appeal from appellate court, Second district.

Suit by the Young Men's Christian Association Gymnasium Company, and cross bill by Warren Gilmore, against the Rockford National Bank and others. There was judgment for plaintiff against the bank, which was reversed on appeal (78 Ill. App. 180), and plaintiff and others appeal. Affirmed.A. D. Early, Wm. Lathrop, and Fisher & North, for appellants.

R. K. Welsh and Works & Hyer, for appellee.

WILKIN, J.

The circuit court of Winnebago county granted the prayer of a bill by the Yound Men's Christian Association Gymnasium Company, and of a cross bill by Warren Gilmore, against appellee, for an injunction restraining it from collecting certain promissory notes, and to compel it to pay over money received on a certain other note. The appellate court reversed that decree, and remanded the cause, with directions; and to reverse that judgment this appeal is prosecuted.

There is no dispute as to the facts. The gymnasium company, having arranged with Marcus S. Parmele, of the firm of Knapp & Parmele, for a loan of $4,000, executed its five promissory notes, dated September 3, 1891, due three years after date, with interest at 7 per cent. per annum, payable semiannually at the office of Knapp & Parmele,-one for $2,000, payable to the order of Warren Gilmore; one for $600, to the order of Elizabeth L. Stires; and one for $600 and two for $400 each, to Knapp & Parmele or bearer. The payment of each of these notes was guarantied by William H. Worthington, E. M. Aikin, Marcus S. Parmele, Charles E. Sheldon, and F. G. Hogland, officers and stockholders in they gymnasium company; and the notes were placed in the hands of Parmele, with 20 other promissory notes, each for $200, dated August 5, 1891, due three years after date, with 7 per cent. interest, payable semiannually to the order of the gymnasium company, 6 of which were severally signed by John G. Penfield, P. R. Walker, C. R. Wise, H. H. Robinson, Charles E. Sheldon, and Anton Neumeister, stockholders in said company, the remaining 14 being executed by other persons, also stockholders. Each of these $200 notes was indorsed by the payee, the gymnasium company, in blank, and a receipt taken from Knapp & Parmele therefor, as follows: ‘Rockford, Ill., Sept. 3, 1891. Received of the Yound Men's Christian Association Gymnasium Company notes as follows: [Here follows a description of each of the twenty notes],-indorsed by William H. Worthington, president, and E. M. Aikin, secretary and treasurer. Above notes held by undersigned as collateral security for the payment of notes as follows: [Here follows a description of the five notes.] When said notes last mentioned are paid, and this receipt returned, said collateral security will be delivered up. Knapp & Parmele.’ The $600 note payable to Knapp & Parmele was indorsed by them to Mrs. Katherine Scott, and one of the $400 notes to Mary R. Tanner, the other being retained by Parmele. With these notes the desired $4,000 loan was obtained, and the money paid over to the gymnasium company by Parmele. Although the name of the firm of Knapp & Parmele appears in connection with the procurement of this loan, the transaction throughout was with Marcus S. Parmele individually; and he retained possession of both the principal and collateral notes until September, 1896, when he delivered the six first described, for $200 each, indorsed in blank, as above stated, to the defendant bank, as security for a loan procured by him. These notes were then past due and unpaid, except as to the interest, which was indorsed upon each as paid to August 5, 1896. The bank had no actual notice of the capacity in which Parmele held them, and received them in the usual course of business, without inquiry. On October 2, 1896, Parmele made a general assignment for the benefit of his creditors to Joel B. Whitehead, as assignee, and turned over to him the $400 principal note remaining in his hands, and all the collaterals, except the six transferred to the bank. On October 6, 1896, the bank collected of Neumeister $202.92,-the amount then due on his note,-and afterwards brought suit against John G. Penfield on his note. The five principal notes and each of the collateral notes, except the one collected, remain wholly unpaid. Both the original and cross bills seek to restrain the defendant from collecting the five remaining notes in its hands, and to require it to pay to the gymnasium company the amount of the one collected. The right to this relief is predicated upon the theory that the assignment of said notes to the defendant by Parmele was without authority, and vested in it no title as against complainants.

The proposition that a pledgee or holder of negotiable paper as collaterals, in the absence of express authority, has no legal right to negotiate the same, may, as a general rule, be granted; but unless the bank, when it took the notes in question, was chargeable with notice that they were held by Parmele merely as collaterals, the rule cannot affect the decision of this case. If it was so chargeable, it must be upon the ground that, having acquired them after due, it was bound to take notice of the rights of the complainants, which is the principal question upon which the decision must turn, and to be hereafter considered. That class of cases cited by counsel for appellants in which the assignor of commercial paper obtained possession without any right or legal title thereto, as by theft, finding, or fraud, are not in point here. In those cases the rule that an owner cannot be deprived of his property without his consent obtains,-subject, however, to the exception in favor of the negotiability of such instruments, that, if they are transferred to an innocent purchaser for value before due, without any notice of the absence of title in the assignor, the transferee will obtain the legal title, even against the true owner, but if the transfer is after maturity no title whatever will pass, no matter how innocently or with what good faith the assignee acquires the instrument. In the one case the purchaser gets a better title than his assignor had, while in the other he does not. And it had been held, in cases falling within the latter rule, that the assignee takes the overdue paper subject not only to the equities of the maker, but also of those of the true owner, or other third parties having an interest therein; the question in such cases being not one of negotiability, but of legal title. Henderson v. Case, 31 La. Ann. 215, cited and quoted from in the argument, was a case of that kind, and the court said: ‘We do not think that the authorities cited by the defendant, to the effect that no collateral equities can affect an assignment of commercial paper transferred after maturity, can be applied to the case where there is a total want of right in the transferror.’ The same distinction exists in the other cases of this class referred to by counsel. In the case at bar the six notes in suit were placed in the hands of Parmele, bearing the indorsement of the payee, without any evidence whatever indorsed thereon or attached thereto that they were to be held by him otherwise than as absolute owner. He was thus clothed with every indicia of the legal title and absolute ownershipby the party to whom they were made payable. It is well settled that such instruments indorsed in blank pass by delivery, the indorsement being treated as made to each subsequent transferee; also, that the negotiability of commercial paper does not cease with its...