Case Name: Sherman State Bank, Appellant, v. John T. Smith et al., Appellees
Court: Illinois Appellate Court
Jurisdiction: Illinois
Decision Date: 1927-04-06
Citations: 244 Ill. App. 171
Docket Number: Gen. No. 31,294
Parties: Sherman State Bank, Appellant, v. John T. Smith et al., Appellees.
Judges: 
Reporter: Illinois Appellate Court Reports
Volume: 244
Pages: 171–180

Head Matter:
Sherman State Bank, Appellant, v. John T. Smith et al., Appellees.
Gen. No. 31,294.
Thomson, J,, dissenting.
Heard in the third division of this court for the first district at the October term, 1926.
Opinion filed April 6, 1927.
James Percival Pio, for appellant.
Hayden N. Bell, for Margaret J. K. Lane, appellee.

Opinion:
Mr. Justice O'Connor
delivered the opinion of the court.
The Sherman State Bank filed its bill to foreclose an incumbrance of $3,500 secured by a trust deed on a certain piece of real estate, Margaret J. K. Lane intervened in the cause and filed a cross-bill claiming that she was the owner of the note and trust deed. The owner of the equity in the real estate admitted the debt was due and unpaid so that the contest was between the Sherman State Bank and Mrs. Lane. The chancellor found that Mrs. Lane was the owner of the note and trust deed and a decree was entered accordingly, from which the Sherman State Bank prosecutes this appeal.
The record discloses that- on July 7, 1920, Margaret J. K. Lane owned a piece of real estate in Chicago and on that date sold it to John T. Smith and Annie E. Smith, his wife, and to secure the payment of the part of the purchase money the Smiths made their promissory note of that date in the sum of $3,500 with interest at 7 per cent per annum payable semiannually. The note was payable to their order and by them indorsed and delivered. Interest coupons maturing every six months evidencing the interest to become due on the mortgage were likewise executed and delivered. The note by its terms was due five years after date, and to secure the payment of it the Smiths executed a trust deed to Bruno F. Kowalewski, trustee. The trust deed was delivered and recorded. Some time prior to the making of the note and trust deed, Kowalewski, the trustee, was ' to a certain extent the financial adviser" of Mrs. Lane and caused himself to be named as trustee in the trust deed. For a long time prior to July, 1920, the trustee, Bruno F- Kowalewski, and his brother, Roman J. Kowalewski, were copartners, apparently in the real estate business and maintained safety deposit vaults at Fifty-first and Throop Streets, Chicago. This business they operated under the name of the Sherman Park Safety Deposit Company and Mrs. Lane rented one of the safety deposit boxes in which she kept her valuable papers, including the mortgage in question. Every six months when the interest on the mortgage came due Mrs. Lane would go to her box, get an interest coupon, present it to Bruno F. Kowalewski, who would call the cashier of the bank (The Sherman State Bank having been incorporated and Bruno F. Kowalewski being then its president and a director and stockholder in the bank) and instruct him to pay Mrs. Lane the interest, and she would surrender the coupon to him and he would collect it from the person who owed the indebtedness. It further appears that on April 24, 1924, Bruno F. Kowalewski advanced to Mrs. Lane $200, $150 more on June 5th and $167.40 on August 14th, and on the latter date he made, executed and delivered to Mrs. Lane his promissory note for $3,000 due one year after date. The aggregate of these three payments was $517,40; $500 is said to have been applied on the principal and $17.40 on the interest on the $3,500 note. On August 14, 1924, Bruno F. Kowalewski went to Mrs. Lane's home and told her that the Smiths who made the purchase-money mortgage were engaged in "some crooked scheme" in reference to the property upon which the trust deed was a lien, and that this fact rendered it necessary for him to have possession of the principal and coupon notes and trust deed so that he could protect her interest, and that unless she gave him these papers she would lose her money, and, therefore, she delivered them to him; that Kowalewski told her she would be protected because she was doing business with the Sherman State Bank; that he then handed her a paper which she did not read, but which she understood was a receipt; that afterwards the document turned out to be the personal note of Bruno F. Kowalewski for $3,000. It further appears that in order for Mrs. Lane to obtain the principal and coupon notes and trust deed she went to the safety deposit box with Kowalewski on August 14, and he assisted her in opening the safety deposit box so that the papers could be obtained. On or about May 15, 1925, Bruno F. Kowalewski committed suicide and his estate is insolvent.
The record further discloses that on August 15, 1924, the day after Bruno F. Kowalewski had obtained the notes and trust deed from Mrs. Lane, the Sherman State Bank "acquired" the notes and trust deed from Kowalewski by paying him $3,526.05, $3,500 being the principal and $26.05 the accrued interest; that after Bruno F. Kowalewski had obtained the notes and trust deed from Mrs. Lane and had given her his $3,000 note he paid her $90, being the semiannual interest due on the $3,000 indebtedness remaining due and unpaid; that prior to January 1, 1925, Bruno F. Kowalewski, on account of irregularities in the conduct of the bank, was ousted from the office of president of the bank. The foregoing facts are stipulated by the parties.
It appears from the record that one of the theories advanced by Mrs. Lane on the trial was that Kowalewski, in obtaining possession of the principal note, coupons and trust deed, under the circumstances disclosed by the record, was guilty of larceny, and, therefore, obtained no title to the notes and trust deed and could not give any to the Sherman State Bank, even though it were a holder for value without notice, and this theory seems to have been adopted by the learned chancellor. The law has long been firmly established that an innocent holder for value of negotiable paper, endorsed in blank before maturity, is protected although the one from whom he received the note may have stolen it from the true owner. The general rule of law is that no one can give a better title to personal property than he has himself. But to favor commerce the law makes an exception to this rule as to negotiable paper and money. It is founded upon principles of commercial policy; Mann v. Merchants' Loan & Trust Co., 100 Ill. App. 224; Shipley v. Carroll, 45 Ill. 285; Murray v. Lardner, 2 Wall. (69 U. S.) 110; Shaw v. Merchants' Nat. Bank of St. Louis, 101 U. S. 557; Tucker v. Bank, 58 N. H. 83; Saltus & Saltus v. Everett, 20 Wend. (N. Y.) 267; Wheeler v. Guild, 20 Pick. (37 Mass.) 545; Voss v. Chamberlain, 139 Iowa 569, 117 N. W. 269, 19 L. R. A. (N. S.) 106. See also section 52 of onr Negotiable Instruments Act, Cahill's St. ch. 98, ¶ 72. In the instant case, even if Bruno F. Kowalewski were guilty of larceny in obtaining the note and trust deed from Mrs. Lane, yet, if the Sherman State Bank was a bona fide owner for value without notice, it would obtain good title to the note. The only exceptions to this rule of law are where fraud or circumvention has been used in obtaining the execution of a negotiable instrument, Cahill's St. 1925, ch. 98, If 11, or if such negotiable instrument was given in a gaming transaction. Cahill's St. 1925, ch. 98, ¶ 78. Neither of these exceptions are involved in the instant case.
We are of the opinion, however, that the Sherman State Bank was not an innocent purchaser, for value without notice, because Bruno F. Kowalewski in transferring the note and trust deed to the Sherman State Bank was the president of that bank. He was also a director and stockholder and acted for the bank in making the transfer and at the same time he was trustee in the trust deed. It has been decided by the Supreme Court of this State that a corporation making a purchase from its president of securities is not chargeable with his knowledge of infirmities in his title. Higgins v. Lansingh, 154 Ill. 301; Seaverns v. Presbyterian Hospital, 173 Ill. 414. But there are several well-considered cases which qualify the above rule of law and that qualification is that where the officer of the corporation is the sole or essential representative of the corporation in the transaction, his knowledge is held to be imputable to the corporation. Mutual Inv. Go. v. Wildman, 182 Ill. App. 137. The Wildman case cites a number of authorities sustaining this qualification. We have examined them and agree with the conclusion reached by the court in that case. From the stipulation in the record it does not clearly appear who acted on behalf of the bank in the transaction, whereby Bruno F. Kowalewski, the president, director and stockholder of the bank, attempted to transfer the note and trust deed to the bank, but it does appear that he dominated the running of the bank and for aught that appears, he may have been the sole person involved in the transaction, representing himself on the one side and the bank on the other.
We are of the opinion that the decree should be affirmed for the further reason that the record discloses that the bank knew that Mrs. Lane owned the note and trust deed because every six months when it became due she obtained a coupon from the safety deposit box in the bank, presented it to the president and he ordered the cashier to pay her. The president of the bank had been for some time Mrs. Lane's financial adviser. He had caused himself to be named as trustee in the trust deed. The bank was, therefore, chargeable with notice of these facts and' even if the bank, under the circumstances, might be considered an innocent holder, yet, the bank having made it possible for Kowalewski to perpetrate the fraud, the loss occasioned thereby should be borne by it. Mann v. Merchants' Loan & Trust Co., supra. The decree of the superior court of Cook county is affirmed.
Affirmed.
Taylor, P. J., concurs.