Bank of California Nat. Ass'n v. Portland Hide & Wool Co.

• Decision Date: 19 November 1929
• Citation: 282 P. 99,131 Or. 123
• Parties: BANK OF CALIFORNIA NAT. ASS'N v. PORTLAND HIDE & WOOL CO.
• Court: Oregon Supreme Court

282 P. 99

131 Or. 123

BANK OF CALIFORNIA NAT. ASS'N v. PORTLAND HIDE & WOOL CO.

Supreme Court of Oregon, En Banc.

November 19, 1929

Appeal from Circuit Court, Multnomah County; Walter H. Evans, Judge.

Action by the Bank of California National Association against the Portland Hide & Wool Company. From a judgment for plaintiff defendant appeals. Affirmed.

This is an action at law brought by the plaintiff, the Bank of California National Association, a corporation of Portland Or., against the defendant, Portland Hide & Wool Company, a corporation, upon a negotiable sight draft drawn by the defendant at Portland, Or., November 30, 1926, for $8,767.08 against Charles J. Webb Sons Company of Philadelphia, Pa., to the order of the Bank of Kenton. The draft was indorsed by the Bank of Kenton to the plaintiff. The cause was tried before the court and a jury resulting in a judgment on a verdict for plaintiff, from which judgment defendant appeals.

The Bank of Kenton is an Oregon corporation located in Kenton, an outlying suburb of Portland. It was organized in 1909. J. V Burke, its president when it closed, had been associated with the bank from its organization.

Defendant delivered said draft to the Bank of Kenton with which it kept its commercial deposit account, and the amount thereof was credited to defendant as cash in its regular deposit account, subject to its check. The draft was payable at sight unrestrictedly to the order of the Bank of Kenton. On the same day, the Bank of Kenton unrestrictedly indorsed and delivered said draft to plaintiff, with whom the Bank of Kenton kept a commercial deposit account, and plaintiff credited the amount of the draft to the Bank of Kenton's deposit account, subject to its checks.

Plaintiff forwarded the draft through the usual channels for presentation by and payment to plaintiff's Philadelphia correspondent, the Philadelphia-Girard National Bank. In the meantime, defendant checked against said deposit in the Bank of Kenton and drew out a part thereof, so that on December 2, 1926, the last day upon which the Bank of Kenton remained open, the balance to the credit of defendant was less than the amount of said draft.

On October 31, 1919, the Bank of Kenton and the respondent entered into a collateral agreement which was in full force at the time the draft in question was delivered to the plaintiff by the Bank of Kenton. This agreement, among other things, provided as follows: "In anticipation of becoming indebted to you by way of loans on promissory notes or overdraft, or both, and as a continuing security to you in consideration of the credit created to us or others for whom I may be endorser, guarantor or maker, by you, we, hereby stipulate and agree that all promissory notes, bills of lading, shipping or warehouse receipts, bonds, bills, stock, or other personal property or choses in action now assigned, hypothecated to or otherwise deposited with you or in your possession or which may at any time hereafter be so assigned, hypothecated, deposited or placed in your possession by us or any one representing us shall be held by you as collateral security for any and all indebtedness from us or others as aforesaid, either created or existing at the time of the deposit of such security or prior or subsequent thereto. * * *"

The defendant in its answer alleged that the draft in question was held by the plaintiff pursuant to this collateral agreement and that the original obligation for which it was held as collateral had been paid; that the Bank of Kenton was hopelessly insolvent at the time it took the draft from the appellant and that no consideration was given therefor, but merely a credit upon the Bank of Kenton's books and therefore title to the draft as between it and the Bank of Kenton did not pass; and that the respondent did not take the draft in good faith and either knew, or was in possession of such facts as to put it upon notice, of the precarious and insolvent condition of the Bank of Kenton; and that therefore it did not become a holder in due course.

Homer D. Angell, of Portland (T. A. Weinke and Angell, Fisher & Sabin, all of Portland, on the brief), for appellant.

Thomas G. Greene, of Portland, for respondent.

BEAN, J. (after stating the facts as above).

Testimony was offered by the defendant showing that at the time of the trial plaintiff held $24,000 in cash from the collateral and the defendant endeavored to produce additional evidence to show payment. The court, however, struck out the evidence showing cash held by the respondent and refused to permit evidence showing payment and instructed the jury to disregard such evidence.

It appears that at the opening of business, November 30, 1926, the Bank of Kenton owed the plaintiff bank an overdraft in the collateral account from the preceding day of $4,574.97. The total deposits by the Bank of Kenton with plaintiff during the day were $140,446.18, including the item of $8,767.08. The draft was deposited to the credit of the Bank of Kenton as cash, subject to check. Plaintiff charged the account of the Bank of Kenton with the amount of the overdraft carried at the close of business November 29th. In addition to this, there were on November 30 presented and paid by plaintiff and charged to the account of the Bank of Kenton, checks and drafts drawn upon plaintiff by the Bank of Kenton to the amount of $144,987.61, leaving an overdraft of $9,116.40 at the close of business November 30, 1926.

When the suspension of the Bank of Kenton became known on December 3, 1926, and before the draft in suit had been presented to Charles J. Webb Sons Company for payment, defendant telegraphed the drawee countermanding payment. Thereafter the draft was presented to the drawee who refused payment and the same was protested.

The first error assigned is that the court erred in striking from the record the testimony offered by defendant tending to show that the plaintiff had on hand at the time of the trial in cash, the sum of $24,837.49 which had been collected from collateral held by it received from the Bank of Kenton and instructing the jury to disregard the testimony.

This testimony was presented upon the issue that the title of the Bank of Kenton to the draft in question was void and therefore the plaintiff, if holding the draft as collateral, was a holder for value to the extent of its loan only, and any payment should have been applied. Section 7819, Or. L.

Before this testimony produced could be material, in addition to the want of title or defective title of the Bank of Kenton to the draft in suit, it was requisite for the defendant to show, or that it should appear from the record, that the plaintiff held the draft as collateral. The testimony of Mr. Ray Landon, a witness for defendant, and deputy superintendent of the bank examiner in charge of the Bank of Kenton and who had the details of the liquidation of the bank in hand, was directly that the draft in suit was not affected in any way by the collateral account, from which it afterward realized $24,837.49, that the collateral had nothing to do with this draft. In other words, the testimony tended to show that the draft in question was not taken by the plaintiff Bank of California, as collateral; hence the testimony referred to was immaterial and was properly stricken. The court instructed the jury that: "If plaintiff has such security or cash, it will be required to account for the same to the Superintendent of Banks of Oregon, as successor to the Bank of Kenton's rights therein, for distribution to depositors and creditors of the Bank of Kenton. If defendant has a right to such collateral, it is only as a creditor or depositor of the Bank of Kenton and those rights, if any, cannot be asserted in this action and constitute no defense thereto."

The Bank of California became the owner of the defendant's draft for $8,767.08, when the Bank of Kenton unrestrictedly indorsed the same for deposit, and it was credited to the Bank of Kenton by the plaintiff as cash, subject to check. Bank of California v. Young, 123 Or. 95, 100, 260 P. 227; City of Douglas v. Federal Reserve Bank, 271 U.S. 489, 492, 46 S.Ct. 554, 70 L.Ed. 1051; U.S. N. Bank of Portland v. Amalgamated Sugar Co. (C. C.) 179 F. 718, affirmed 187 F. 746, 109 C. C. A. 494.

The Bank of Kenton was an indorser of the draft in suit drawn by the defendant Portland Hide & Wool Company. The Bank of California was under no obligation to apply the deposit of an indorser of the paper to its payment. The duty of a bank to appropriate a deposit to the payment of a note has not been extended by any case beyond the deposit of the maker. 3 R. C L. § 225, p. 597; Landers Co. v. Lincoln-Alliance Bank (C. C. A.) 298 F. 79, 37 A. L. R. 576, and note page 578. We quote from pages 577 and 578 of the latter report, 298 F. 79, 81: "Again, in the case of Thomas v. Matthiessen, 232 U.S. 221, at page 236, 34 S.Ct. 312, 314 (58 L.Ed. 577), Mr. Justice Holmes, in delivering the opinion of the court, says: 'The defendant was a principal debtor. * * * The fact that the corporation had deposits in the banks that held the notes did not discharge the notes pro tanto.' The Supreme Court of the United States in this last case seems to settle the general law to be that the bank holding the discounted note bona fide and for value is not obliged to apply the deposits of its immediate indorser, before bringing suit against the maker and those principally bound, and it is by the general law that the United States courts must decide this case." It is stated in the annotations to that case as follows at page 578 of 37 A. L. R.: "The accepted rule in most jurisdictions is that while a bank which is the holder of a note or bill of exchange...