Cook County IL Archives Court.....Martina, Vaclav 1900
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Deb Haines http://www.genrecords.net/emailregistry/vols/00003.html#0000719 May 1, 2008, 6:20 pm

Source: Reports Of Cases At Law And In Chancery
Written: 1900

Vaclav Martina et al. 

v.

Henry C. Muhlke. 

Opinion filed June 21, 1900.

1. Bills and notes—when fraud will invalidate note in hands of an innocent 
holder. In order that fraud may invalidate a note in the hands of a bona fide 
purchaser before maturity and without notice, it is necessary that such fraud 
must have been employed in obtaining the execution of the instrument.

2. Same—when trustee's fraud is no defense to suit on notes. One who executes 
new notes and trust deed and delivers them to the trustee to secure an 
extension of time upon the trustee's promise to return the old trust deed and 
notes, may defend foreclosure of the new trust deed, where the trustee has 
sold it, with the notes, to a bona fide purchaser without notice and 
appropriated the proceeds, leaving the old trust deed and notes in force, but 
he cannot interpose the trustee's fraud as a defense to a suit at law on the 
notes.

Writ of Error to the Appellate Court for the First District;—heard in that 
court on writ of error to the Superior Court of Cook county; the Hon. Theodore 
Brentano, Judge, presiding.

The following is the statement of the facts made by the Appellate Court in 
this case:

"The plaintiff in error, Vaclav Martina, borrowed from Theodore Schintz the 
sum of $3000, and executed notes therefor and a mortgage upon his homestead to 
secure the same. After some payments upon the indebtedness and one extension 
of the payment of balance due, there was an arrangement made between borrower 
and lender in June, 1897, to execute new notes and trust deed to secure 
payment of balance then remaining due, and for another extension of the time 
of payment for the period of five years. When the new notes and the new trust 
deed for the purpose of this last extension were executed by Martina they were 
given to Schintz, who said that he would return the old notes and the old 
trust deed in a few days after the recording of the new papers. Schintz sold 
the new notes secured by the new trust deed to defendant in error, Muhlke. A 
Mrs. Foote held the old notes secured by the old trust deed. Schintz converted 
to his own use the proceeds of the sale of the new notes and left the old 
notes unpaid in the hands of Mrs. Foote, and constituting a valid first lien 
upon the property to the extent of the unpaid balance due thereon. In December 
following June, 1897, Muhlke caused judgment to be entered upon the $1200 
principal note which he had bought from Schintz, and also upon one of the 
overdue interest coupons for $36, the note having a warrant of attorney 
attached and a provision for the entering of judgment.

"Muhlke, the defendant in error, filed his bill here to foreclose the trust 
deed which was given to secure these notes, and by his amended bill he sought 
to obtain a foreclosure of the lien created by that trust deed to satisfy the 
judgment.

"Martina, plaintiff in error, filed his cross-bill, setting up the foregoing 
facts, and seeking to have the notes and trust deed held by Muhlke canceled 
and the record of the trust deed 'annulled and removed as a cloud from the 
title' of Martina to the property in question, and also praying for a decree 
vacating the judgment which Muhlke had obtained on his notes upon the law side 
of the court. The cause was referred to a master in chancery. The master 
reported inter alia findings and conclusions that complainant, Henry C. 
Muhlke, was a bona fide purchaser for value of said promissory note for $1200 
before maturity, and as such was entitled to the judgment in law upon said 
notes; that the trust deed securing that note having been given without 
consideration, complainant took the same subject to all the defenses said 
cross-complainant could have opposed to a foreclosure of the same by Theodore 
H. Schintz: and recommended that a decree be entered dismissing complainant's 
bill of complaint for want of equity, ordering cancellation of said trust deed 
and denying any further relief under crossbill. The court overruled the 
exceptions of plaintiff in error and those of defendant in error, and entered 
a decree in accordance with the recommendation of the master." A writ of error 
was sued out from the Appellate Court where the decree has been affirmed, and 
the present writ of error is prosecuted to review such judgment of affirmance.

Jones & Lusk, for plaintiffs in error.

Pence, Carpenter & High, for defendant in error.

Per Curiam: In deciding this case the Appellate Court delivered the following 
opinion:

"Error is assigned by the plaintiff in error in that the court denied relief 
prayed by the cross-bill, viz., the vacating of the judgment at law obtained 
by the defendant in error upon the principal and interest notes in question. 
And cross-error is assigned by defendant in error in that the court denied the 
relief prayed by the amended bill of complaint, viz., the enforcement of the 
lien of the trust deed given to secure these notes, and in that the court 
ordered the trust deed to be canceled.

"We are of opinion that the trial court was right, and that it did not err in 
either of these respects. It seems clear from the evidence that the plaintiff 
in error dealt with Schintz as the lender of the money and the mortgagee in 
the conveyance which secured the loan. As between them there was no equitable 
claim against plaintiff in error under the trust deed, and hence under the 
rule, well established by many decisions of this State, defendant in error 
acquired no equitable rights when the mortgage notes were transferred to him. 
(Olds v. Cummings, 31 Ill. 188; Walker v. Dement, 42 id. 272; Sumner v. Waugh, 
56 id. 531; White v. Sutherland, 64 id. 181; Haskell v. Brown, 65 id. 29; 
Thompson v. Shoemaker, 68 id. 256; Towner v. McClelland, 110 id. 542; Himrod 
v. Gllman, 147 id. 293; McAuliff v. Renter, 166 id. 491; Buehler v. McCormick, 
169 id. 269).

"But this rule has no application to the rights of defendant in error to a 
legal claim quite independent of any lien upon the premises in question, which 
legal claim was acquired by the defendant as purchaser of the notes for value 
and before maturity and without notice of plaintiff in error's defense. It 
cannot be said that the execution of these notes was procured by fraud or 
covin, in the sense that would make the notes invalid. Plaintiff in error 
executed the notes with full knowledge of just what they were, and there was 
nothing in the execution of them which could operate to bring them within the 
rule, which applies only to instruments execution of which is obtained by 
fraud. The fraud necessary to thus invalidate must be fraud in obtaining the 
execution of the instrument. (Woods v. Hynes, 1 Scam. 103; Mulford v. Shepard, 
id. 583; Adams v. Wooldridge, 3 id. 255; Shipley v. Carroll, 45 Ill. 285; 
Depuy v. Schuyler, id. 306; Richelieu Hotel Co. v. Military Encampment Co. 140 
id. 248).

"Nor can it be said, as against defendant in error, that these notes were not 
fully delivered. (Clarke v. Johnson, 54 Ill. 296). Nothing was lacking in 
matter of execution or delivery. Default of Schintz was in failing to deliver 
the old notes and release of the old trust deed. This failure operated to give 
plaintiff in error a complete defense to any obligation under the new notes as 
against Schintz, and, in equity, against enforcement of the lien of the 
mortgage by the purchaser from him, defendant in error, but it constituted no 
defense in law against the obligation of the notes themselves in the hands of 
a bona fide purchaser before maturity and without notice. The judgment 
obtained at law could not be attacked in the proceeding, simply because 
plaintiff in error had an equitable defense against the lien of the trust 
deed. No other ground is disclosed for the intervention of equity in relation 
to the judgment. Therefore, the defendant in error was entitled to his 
judgment in law, and the court properly denied the prayer of the cross-bill to 
vacate it.

"Argument of counsel for defendant in error, that the equities of plaintiff in 
error, as against the obligation of these notes, did not exist when defendant 
in error bought them, but arose afterwards when Schintz failed to return the 
old notes, and therefore the doctrine of Olds v. Cummings, supra, does not 
apply, we regard as untenable. If Schintz was the money lender and the real 
mortgagee, then there was never any time when the equities of plaintiff in 
error did not exist as against the notes and the conveyance securing them, so 
far as Schintz was concerned, for there was never a time when the notes were 
enforcible in his hands. It follows that there was never any time at which he 
could have conveyed them to defendant in error, so as to give the latter any 
equitable right to a lien under the mortgage."

We concur in the foregoing views and in the conclusion above announced. 
Accordingly, the judgment of the Appellate Court is affirmed.      

Judgment affirmed.

Additional Comments:
Reports of Cases at Law and in Chancery Argued and Determined in the Supreme 
Court of Illinois, Volume 186, Containing Cases in which Opinions were filed 
in June and October, 1900, and Cases in which Rehearings were denied at the 
October term, 1900. Isaac Newton Phillips, Reporter. Springfield: 1900.

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