Bank of California v. American Fruit Growers
| Decision Date | 19 November 1941 |
| Docket Number | No. 143.,143. |
| Citation | 41 F. Supp. 967 |
| Court | U.S. District Court — District of Washington |
| Parties | BANK OF CALIFORNIA, N. A., v. AMERICAN FRUIT GROWERS, Inc. |
COPYRIGHT MATERIAL OMITTED
Bogle, Bogle & Gates, of Seattle, Wash., Crollard & O'Connor, of Wenatchee, Wash., and Ray Dumett, of Seattle, Wash. for plaintiff.
Kerr, McCord & Carey, of Seattle, Wash. for defendant.
In this case the plaintiff contends that defendant converted the proceeds from certain sales of apples produced in 1937 on which plaintiff alleges it had a first lien by virtue of certain crop mortgages executed by some thirty-one fruit growers in the Wenatchee Valley of the State of Washington. The plaintiff prays for an accounting and, after such accounting, judgment in the sum of $67,771.30 with interest.
The plaintiff is a national banking association with its principal place of business in San Francisco, California. It maintains a branch at Seattle, Washington. It was through this branch that the transactions herein involved were consummated.
The defendant is a corporation organized under the laws of the State of Delaware. It does business in many parts of the United States, and in the State of Washington it transacts business in Chelan County. During the time involved in this controversy defendant's business in that county consisted of the growing of apples and other fruit on orchards which it owned. During all of such times and up to December 20, 1937, defendant maintained an organization known as the Northwestern Fruit Exchange, a corporation (which was a wholly-owned subsidiary of defendant) which was engaged in the marketing of the products of the defendant and of other growers in the Wenatchee Valley. This corporation will hereafter be referred to as "The Exchange." The Exchange was dissolved on December 20, 1937, and all of its assets were taken over and all of its liabilities assumed by the defendant.
During the years 1930-1932, inclusive, the general depressed economic situation in the country was peculiarly disastrous in that portion of the State of Washington devoted almost exclusively to the production of apples and known as the Wenatchee-Okanogan region. The banks in the locality either failed or were in such precarious financial condition as to be unwilling or unable to furnish the necessary financing for the production of the fruit crops. Those engaged in all branches of the industry found it necessary to look to the Federal Government for financial assistance. As a consequence, early in 1932 the defendant, through its regional manager, Myron S. Foster, prevailed upon the railroad companies and power companies serving the district and upon the various cold storage and warehouse companies, both within and without the district, to join with it in financing the Columbia Agricultural Credit Corporation. This will be referred to hereafter as "Columbia." Capital in the amount of $200,000 was accumulated. Of this, the defendant furnished $25,600 through its subsidiary, The Exchange. The officers of The Exchange became the officers of Columbia. The office of Columbia was established in the building occupied by The Exchange and the defendant. The business of Columbia was transacted by the officers and employees of The Exchange who received no compensation for the work performed for Columbia. (After two years the treasurer of Columbia, who was also treasurer of The Exchange, was paid $50 per month by Columbia.) Shortly after its formation, arrangements were made by Columbia to secure a line of credit with the Reconstruction Finance Corporation during that year in the amount of $800,000.
In 1933, the Regional Agricultural Credit Corporation, another Federal agency, moved into the Wenatchee situation dealing directly with the growers and Columbia's credit with R.F.C. amounted only to $65,000.
Briefly, the R.F.C. deal was as follows:
Columbia took from the individual growers crop mortgages upon the entire crop to be produced by such growers during the year. From any lien creditors of such growers they took stand-by agreements in which such lien creditors agreed not to disturb the grower during the time during which the crop was produced and harvested and sold. Columbia and The Exchange entered into an agreement under the terms of which The Exchange was to market the crops, collect the proceeds, deduct its necessary selling expenses, advances, storage and freight and commissions and remit the balance to a depository designated by the R.F.C. The growers' notes and mortgages were deposited with R.F.C. along with the necessary endorsements and assignments. There was also deposited with R.F.C. the standby agreements above-described and a copy of the above-described agreement between Columbia and The Exchange, which I will hereafter refer to as "the agreement of May 23, 1932." The money of the R.F.C. was advanced upon the depositing with it of the above-described notes and mortgages. For the protection of the R.F.C. The Exchange was required each time that it withdrew apples from storage for sale and delivery to deposit with the R.F.C. a trust receipt. This was on a regular form prepared by the R.F.C. In effect, it provided that such apples were received by The Exchange in trust to be handled as provided in the agreement of May 23, 1932. This agreement was referred to and by reference adopted as a part of the trust receipt.
So far as the record of this case discloses, the financing by R.F.C. and the use of that financing by Columbia and The Exchange was carried out to the satisfaction of all parties during the years 1932 and 1933.
During the spring of 1934 conversations commenced between the manager and assistant manager of the Seattle branch of the plaintiff and Mr. Foster and Mr. Schultz of the defendant concerning the possibility of the plaintiff taking over the financing which in the two previous years had been done by the R.F.C. Mr. Foster was then the regional manager for the defendant and the president of The Exchange and of Columbia. Mr. Schultz was treasurer of The Exchange and of Columbia. There is some dispute as to which side originated the conversations. That, however, is unimportant as both sides appeared willing to arrive at some satisfactory understanding. For at least two years prior thereto the defendant and The Exchange had done a substantial portion of their banking business with the plaintiff. Substantial loans had been made by the plaintiff to the defendant. The relationship had been pleasant and profitable to both parties. For the year 1934, Mr. Foster and Mr. Schultz, treasurer of Columbia, estimated that Columbia would need a line of credit of $500,000. It is undisputed that Foster explained to plaintiff's officers the details of the requirements of R.F.C. It is undisputed that, insofar as the use of crop mortgages and stand-by agreements were concerned, the same method was to be pursued by the plaintiff bank. It is undisputed that Foster furnished to plaintiff the form of trust receipt which had been used with the R.F.C. and in which reference was made to the agreement of May 23, 1932. It was understood by all that The Exchange would market the crops produced as a result of the financing and that the marketing of those crops would result in sales and deliveries being made to the various persons and firms throughout the United States and in foreign countries. The bank officers not only knew that such marketing by The Exchange would result, but they testified that they insisted upon it. Unfortunately, no written agreement was entered into describing the rights and duties of the respective parties concerning the manner in which The Exchange was to apply the proceeds of the sales as between itself and its expenses, advances and commissions and the bank for the repayment of its loans. Had there been such an agreement, this lawsuit would not have been tried.
The bank officers both testified positively and directly that Foster and Schultz agreed that The Exchange would account to the bank for its advances before making any deductions on its own behalf. This agreement was denied by Foster and Schultz. They testified that it was understood that The Exchange could and should make its deductions first and then remit the balance to Columbia to the end that Columbia would repay to the bank the portion of such balances necessary to retire the loan of each individual grower involved. Foster and Schultz both testified that in explaining the R.F.C. terms to the bank officers they delivered to them not only forms of crop mortgages and stand-by agreements and trust receipts, but, also, a copy of the agreement of May 23, 1932, and a copy of the standard marketing contract which had been used between the shippers and The Exchange. The bank officers denied receiving either of these papers. Mr. Foster's testimony was that plaintiff's Seattle branch manager received the papers and pushed them aside with the statement that they were but typical government red tape and that they would do business upon the same basis as they had done it in the past.
After some discussion in which it was agreed that Columbia would reduce its request for a credit line from $500,000 to $350,000, plaintiff's Seattle officers made a report to the executive committee in San Francisco in which they recommended the loan. In that report, there was explained the relationship between Columbia and The Exchange and the defendant. Columbia's balance sheets as of April 10, 1933, and March 17, 1934, were included. The history of the organization of Columbia and its satisfactory relationship with R.F.C. were detailed. There was included a list of Columbia stockholders and their respective stockholdings. There was an explanation of the fact that Columbia would furnish over-riding collateral in the form of short term government securities in the amount of between $100,000 and $120,000. There was included with the report a copy of the trust...
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