Henshaw v. State Bank

Mr. Justice Carter delivered the opinion of the court: The main question argued in this case is whether the appellant bank took the certificates in good faith, without notice of appellees’ title. The evidence in this record shows that when James H. Christian took the first certificate to the appellant bank he told the president of the bank that the certificate was given to his brother, H. W. Christian, when a division was made by the trustees of the land association, as his part of the profits of the land trust. The president thereupon told Christian that hfe would have to obtain the endorsement of H. W. Christian. The certificate was already endorsed by D. S. Place. James H. Christian thereupon took the certificate away and brought it back with the endorsement on the back, “H. W. Christian, Trustee of Chicago Auburn Park Land Trust.” The bank officials made no further inquiry as to why the certificate was endorsed “trustee.” The president of the bank testified that when the 'Second certificate was presented he supposed it was owned in the same way and was satisfied with the same endorsement, “H. W. Christian, Trustee of the Chicago Auburn Park Land Trust.” This court, in Chicago Title and Trust Co. v. Brugger, 196 Ill. 96, held that where a trustee having no title to a trust deed and note fraudulently transferred them to a trust company, it devolved upon the trust company to show that it took the paper in good faith, without notice, for value and before maturity, in the usual course of business, and that where the note and trust deed bore endorsement showing that another person than the trustee was the legal holder of the note, a purchaser from the trustee who relied upon his explanation of the endorsement instead of making inquiry as to the ownership of the note was not entitled'to protection as against the legal holder of the note, whom the trustee had defrauded in making the sale. In Shaw v. Spencer, 100 Mass. 382, it was held that when a certificate of. stock in the name of A. B, trustee, was pledged by him to secure his own debt, the pledgee was by the terms of the certificate put on inquiry as to the character and limitations of the trust, and if he accepted the pledge without inquiry, did so at his peril. In Geyser-Marion Gold Mining Co. v. Stark, 106 Fed. Rep. 558, the title of stock was in the name of C. D., trustee, and that court said that the word “trustee” meant something. “It is a warning and a declaration to eveiyone who reads it that the person so named is not the owner of the property to which it relates; that he holds it for the use artd benefit of another, and that he has no right or power to sell or dispose of it without the assent of his cestui que trust.” The record in this case is clear that these certificates were not the property of H. W. Christian, and that if the bank officials had made reasonable inquiry they could readily have ascertained that fact. Our attention has been called by appellant to Barbour v. White, 37 Ill. 164, Silverman v. Bullock, 98 id. 11, and Olds v. Cummings, 31 id. 188, where the rule is laid down that although the assignee of a mortgage takes it subject to. equities in favor of the maker, he does not take it subject to latent equities in favor of third persons of which he had no notice. We do not think that line of authorities has any particular bearing on the question here under discussion. The bank had notice by the endorsement of H. W. Christian as trustee. If it chose to rely on the false statement of the one that presented the certificates that they belonged to H. W. Christian, instead of making an inquiry as to the real ownership, it was not entitled to protection against such owners. The Appellate Court rightly decided' that the bank took these certificates with notice of appellees’ title. We think the contention of the appellant that appellees are estopped from disputing the bank’s title or Christian’s power to. dispose of the certificates because said Christian had been clothed with all the usual indicia of ownership of the certificates is without ‘force, in view of what we have said with reference to the appellant bank being notified, by endorsement and otherwise, that Christian held these notes only as trustee. The further contention of appellant that appellees were without authority to bring this suit as trustees under the declaration in question cannot be sustained. The trust agreement gave the trustees power to represent the shareholders in all suits or legal proceedings, and the agreement further provided: “Whether the trust be determined by lapse of time or otherwise, their powers shall continue for the purpose to prosecute and defend all suits and legal proceedings pending at the time of such termination of the trust” and “to do all other acts necessarily or properly incidental” to winding up the trust. The recovery of these certificates, the property of the trust, is clearly for the benefit of the stockholders and properly incidental to winding up the trust. This agreement authorized this action to be taken and begun after the ten years provided for during which it was to remain in force. The further contention of appellant that these proceedings cannot be upheld because appellees are guilty of laches is without force, even though that point could be raised for the first time in the Appellate Court, as seems to have been the case in this proceeding. Laches, to be availed of as a defense,' should be set up in the trial court. Zeigler v. Hughes, 55 Ill. 288; Spalding v. Macomb and Western Illinois Railway Co. 225 id. 585; Schnell v. City of Rock Island, 232 id. 89. Other points are raised in the briefs, but what we have already said disposes of all the material questions involved. The judgment of the Appellate Court will therefore be affirmed. , Judgment affirmed.