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April 3, 1973


The opinion of the court was delivered by: Will, District Judge.


This case involves determinations of liability and ownership arising out of the alleged theft of securities from the plaintiffs, the Mirianis, and the subsequent sale of those securities to defendant and counter-plaintiff, Southeast Guaranty Trust Company, Ltd. (Southeast). Rodman and Renshaw, Inc. (Rodman), defendant, counter-plaintiff and cross-defendant in this action, is moving for summary judgment in its favor as against the Mirianis on Count V of their Second Amended Complaint, and as against Southeast on its Cross Complaint. In the alternative, Rodman seeks the entry of an order striking both counts for failure to state a cause of action. For the reasons set out below, both the motions for summary judgment and the motions to strike are denied.

In an earlier opinion of this court, dated January 23, 1973, 358 F. Supp. 1001, disposing of various motions to dismiss made by several of the defendants, the rather lengthy and complicated facts of this case were set out in full. They will not be repeated here except as is necessary to dispose of the motions at hand.


The Mirianis allege that certain municipal bonds were stolen from them and that they immediately notified all paying agents/trustees of the bonds of the theft. Later, Southeast, through its agent, Geist, negotiated with defendants Spiwak and Levy for the purchase of these same bonds. Southeast went to its broker, Rodman, and requested a check on the validity of the bonds and assistance in the resale of the bonds after they were purchased. In reliance on Rodman's assurances that the bonds were valid, Southeast purchased the bonds at a substantial discount and authorized their resale. It was then discovered that the bonds had been stolen from the Mirianis and the resales were all cancelled. Both Southeast and the Mirianis claim lawful ownership of the bonds and seek a determination to that effect.

Count V of the Miriani complaint alleges a breach of a duty owed the Mirianis, as original owners, by Rodman through its negligence in failing to make a proper check of the validity of the bonds after being retained to do so by Southeast. In the event Southeast is determined to be a bona fide purchaser for value, and consequently awarded ownership, the Mirianis seek indemnification from Rodman for the value of the bonds.

In its Cross-Complaint, Southeast alleges this same negligence on the part of Rodman in verifying the bonds.*fn1 In the event Southeast is determined not to be the lawful owner, it seeks reimbursement in the amount paid for the bonds in reliance on the information given it by Rodman.

Rodman has moved for summary judgment claiming it cannot be held liable to either party even assuming, for the purposes of these motions, its investigation of the validity of the bonds was performed negligently. It contends that, since negligence is irrelevant to the determination of ownership of the bonds under the applicable provisions of the Uniform Commercial Code (U.C.C.), any negligence on its part could not have been the proximate cause of any injury suffered. Additionally, it argues that no law imposed any duty on it to investigate the validity of the bonds, and therefore any negligence on its part in doing so cannot be actionable as there has been no breach of a duty. This latter argument is urged most strongly against the Mirianis, to whom Rodman denies the existence of any duty whatsoever.

We cannot accept defendant's arguments. First, it is not correct that negligence is always irrelevant to the determination of ownership under the U.C.C. A bona fide purchaser, who acquires good title even as against the true owner, is defined as one who takes "for value in good faith and without notice of any adverse claim." Ill.Rev.Stat., ch. 26, § 8-302. This test encompasses three distinct elements: "value", "good faith", and lack of "notice of any adverse claim." (See Official Comment following § 8-304.) Assuming the requirement of value is satisfied, Rodman appears to argue that, for the remaining two elements, the bona fides of a purchaser are tested only by what has been characterized as a "pure heart, empty head" approach — did the purchaser act honestly in the conduct or transaction concerned; and did he, in fact, have any actual knowledge of the adverse claim. In Rodman's view, a finding that Southeast is not a bona fide purchaser "could only be predicated on a lack of value or honesty or on notice or knowledge which would render the request to Rodman and Renshaw [to verify the bonds] meaningless." (Brief for defendant, p. 5)

While Rodman correctly characterizes the test of "good faith" as a subjective one, it overlooks a significant provision included in the Code's definition of "notice":

(25) A person has `notice' of a fact when

(a) he has actual knowledge of it; or

    (b) he has received a notice or notification of
        it; or
    (c) from all the facts and circumstances
        known to him at the time in question he has
        reason to know that it exists. Ill.Rev.
        Stat., ...

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