Court Opinion

ID: 8858418
Source: CourtListenerOpinion
Date Created: 2022-11-26 17:37:54.62839+00
Date Added: 2024-06-11T17:05:44.333989
License: Public Domain

Supplemental Opinion Upon Petition for Rehearing. The attorneys for the defendant have filed a petition earnestly requesting a rehearing, which prompts some further observations. What is the effect on negotiability of a provision in the instrument limiting the right of the holder to sue in his own name? In Pflueger v. Broadway Trust & Savings Bank, 265 Ill. App. 569-581, is presented the view that such a provision is so contrary and repugnant to the essence of the instrument that it is void, citing a large number of supporting cases. There are also a considerable number of cases which tend to hold that any provision which limits the right of the holder to sue in his own name destroys negotiability. We recognize that Paepcke v. Paine, 253 Mich. 636, and Pflueger v. Broadway Trust & Savings Bank, 351 Ill. 170, apparently hold that such a provision cannot affect the negotiability of the instrument since, as stated in the latter case, such a provision relates only to the remedy after default and when the instruments have ceased in the full commercial sense to be negotiable. We suggest that, as it is obvious no suit could be brought by a holder before maturity, and, if the so-called “No-Action Clause” is operative only after default, the holder can never bring a suit at law, although the Negotiable Instruments Act provides, as an incident of negotiability, that “The holder of a negotiable instrument may sue thereon in his own name.” Ch. 98, par. 71, sec. 51, Illinois Statutes (Cahill) 1933. There is a very impressive body of authority indicating that the right of a holder to sue is an essential of negotiability. In Shaw v. Railroad Co., 101 U. S. 557, the court, answering" the question as to what is negotiability, says: “It is a mercantile business transaction, and the capability of being thus transferred, so as to give to the indorsee a right to sue on the contract in his own name, is what constitutes negotiability.” To the same effect are Moody v. Morris-Roberts Co., 38 Idaho 414; Cella v. Brown, 144 Fed. 742, and cases cited in 8 C. J. 51, sec. 51, and in 3 R. C. L., 837, sec. 11. This precise question was considered in St. Louis-Carterville Coal Co. v. Southern Coal & Mining Co., 194 Mo. App. 598, where the court, holding the coupon notes non-negotiable, said: “The provisions of the bond calling into it those of the mortgage in connection therewith limits the right to collect the amount stipulated on the face of the coupon at the time therein stated in accordance with the conditions prescribed in the mortgage. This being true, it is clear all of the elements pertaining to negotiable instruments purchased in good faith before maturity, are not present. Obviously such a coupon is not to be treated in the law of negotiable instruments as a ‘courier without luggage.’ ” In 29 Columbia Law Review, 365, it is said: “. . . A more prevalent view is to consider that the reference makes the mortgage provisions a part of the bond, but if the mortgage . . . requires that no bondholder can sue on the bond until the trustee has had a reasonable time to sue on behalf of all‘the bondholders, or requires that a majority of bondholders must join in a suit for default in payment of the bond, the courts declare the bond to be non-negotiable. ...” It has been the rule from ancient times that a holder of a negotiable instrument could sue thereon in his own name. See Nutford v. Wolcot, 1 Lord Raymond, 574, decided in 1699. If we assume the instant bonds are negotiable, and both parties to this suit say that they are, we must, if possible, construe the words in the bonds so they will be consistent with the provision of the statute above quoted. It has been the custom for many years for negotiable instruments of this kind to refer to the security. One who loaned money or purchased such paper did so depending upon the reliability of the obligor and also upon the security. A purchaser would not surmise that words referring to the trust deed in any way limited his statutory right to sue -in his own name. Latterly there have been strenuous efforts to have such words as “subject to the provisions” of the trust deed construed to mean that the provisions of the trust deed controlled and limited the right of the holder to sue. Sturgis Nat. Bank v. Harris Trust & Savings Bank, 351 Ill. 465, held against this. The words in the bonds in the instant case are, that principal and interest “are payable in the manner described in the trust deed.” But these words are no more definite than the questioned words in the Sturgis case. Considered technically, the provision in the present trust deed does not relate to the “manner” in which the bonds “are payable,” but does attempt to control the. procedure upon default in payment. It should not be forgotten that a secured negotiable instrument gives a negotiable instrument, plus security ; reference to the security is reference to the added rights. We held that the promise to pay was unconditional and that the provision in question refers to the security and the manner of proceeding against this security. We see no reason to change our former opinion, and the petition for rehearing is therefore denied. Petition for rehearing denied. Hatchett, P. J., and O’Connor, J., concur.