The opinion of the court was delivered by: TROUTMAN
In this diversity action, plaintiffs charge defendants with tortious conversion of certain negotiable debentures of the American & Foreign Power Company, Inc. Defendant Central Penn National Bank (Central Penn) took the debentures in bearer form as collateral for two loans to defendants Weiss and Consolidated Millworks, Inc., totalling $60,000 in November, 1972. Defendant Central Penn cross-claimed against Weiss and Consolidated for the unpaid principal balance, interest and fees due under the loans and a default judgment has been entered against Weiss and Consolidated in the amount of $77,492.98 with interest and costs. In addition, a default judgment has been recorded against Weiss and Consolidated in favor of plaintiffs. Presently before the Court is Central Penn's motion for summary judgment.
On April 18, 1972, 82 American & Foreign Power Company, Inc. 5% gold debenture bonds due 2030 and 88 American & Foreign Power Company, Inc. 4.8% debenture bonds due 1987 belonging to plaintiffs were stolen from plaintiffs' messenger in New York City. Plaintiffs subsequently discovered that their debentures were in the possession of defendant Central Penn, after Central Penn had unsuccessfully attempted to sell, transfer or register the debentures, having been informed by the transfer agent that a stop order had been received and was being honored. Defendant Central Penn's attempt to negotiate the bonds occurred after Weiss and Consolidated defaulted on the loan.
Defendants' Motion for Summary Judgment
Central Penn argues that the debentures are negotiable investment securities under Article 8 of the Uniform Commercial Code, 12A P.S. § 8-102 et seq. Central Penn claims that it took the debentures as collateral for the loans to Weiss and Consolidated, for value, in good faith and without notice of any adverse claim, thereby acquiring the status of a bona fide purchaser which under Article 8, 12A P.S. § 8-301, entitles it to the debentures free and clear of any adverse claim, including plaintiffs' present claim as the true owners. Plaintiffs argue that Central Penn must be charged with notice of plaintiffs' claim because of the circumstances under which the loans to defendants Weiss and Consolidated were made in November, 1972. Plaintiffs contend, in addition, that the case is not an appropriate one for summary disposition as there are outstanding crucial factual disputes which require a trial.
Central Penn received the debentures under the following circumstances: defendant Weiss called L. Charles Edwards, a loan officer of defendant, in early November, 1972. He told Edwards that a Mr. Raymond Bopp had recommended Central Penn for the loan Weiss wanted in connection with his newly acquired corporation, Consolidated Millwork, Inc. Weiss, as principal shareholder of Consolidated, would use the money to purchase Canadian Lumber for retail and for fabrication. Edwards then ordered a Dun & Bradstreet report on the corporation.
At a subsequent interview, Weiss presented a September 1, 1972 balance sheet of Consolidated Millwork, Inc., but Edwards refused to make the loan on that basis. Weiss informed him that he could collateralize the loan with securities. Edwards was agreeable provided the securities were marketable and another meeting was arranged.
In the meantime, Edwards discovered that Weiss had opened an account in August, 1972, with Lincoln National Bank which averaged a moderate four-figure balance and that a secured commercial loan to Consolidated in a low five-figure amount was outstanding. In an unrelated telephone conversation, Bopp, a Central Penn customer, stated that he knew Weiss, "who had been a Philadelphian for quite some time and is quite a good fellow", or words to that effect. In addition, Edwards' check with Central Penn's securities department revealed that the bank had no notification that the American Foreign & Power Company, Inc. debentures were stolen. Edwards received the Dun & Bradstreet report on Consolidated and checked Moody's Industrial Manual for the debenture ratings. On the basis of that information, he concluded that the bank could advance funds up to 75% of the present market value of the debentures.