Bank of California v. National City Co.

• Decision Date: 08 April 1926
• Docket Number: 19609.
• Court: Washington Supreme Court
• Parties: BANK OF CALIFORNIA v. NATIONAL CITY CO.

244 P. 690

138 Wash. 517

BANK OF CALIFORNIA v. NATIONAL CITY CO.

No. 19609.

Supreme Court of Washington

April 8, 1926

Department 2.

Appeal from Superior Court, King County; Lindsley, Judge.

Action by the Bank of California against the National City Company. Judgment for plaintiff, and defendant appeals. Reversed and remanded, with directions.

Bullitt & Kahin, of Seattle, for plaintiff in error.

Hugh M Caldwell, amicus curiae.

Kerr McCord & Ivey, all of Seattle, for respondent.

PARKER J.

The plaintiff bank commenced this action in the superior court for King county seeking recovery from the defendant company of 12 interest-bearing bonds of the face value of $500 each issued by the Pacific Gas & Electric Company of California, or, in the alternative, the value of the bonds, if delivery thereof cannot be had. A trial upon the merits without a jury resulted in findings and judgment awarding to the plaintiff recovery of the value of the bonds; their delivery not being possible because of the defendant's disposition of them. From this judgment the defendant has appealed to this court.

Our real problem is as to whether or not the bonds in question are negotiable, in the sense of possessing that quality to the extent that good title to them may pass by delivery to an innocent purchaser in good faith for value, though they may have been stolen from some former owner and the claim of title to them by appellant be rested, through mesne transfers, upon a former transfer by the ones who stole them.

The controlling facts are not in dispute and may be summarized as follows: The Pacific Gas & Electric Company, on December 1, 1922, issued a large number of its bonds for the principal sum of $500 each, maturing December 1, 1952, aggregating a very large sum. The bonds here in question are numbered 2727 to 2740, inclusive, of that issue. They are upon their face designated as 'FIRST AND REFUNDING MORTGAGE GOLD BONDS,' printed in outstanding capital letters. They are made payable to 'BEARER'; that word being also printed in outstanding capital letters, unaccompanied by any word or words suggesting in the slightest degree the necessity of indorsement by an owner for purpose of transfer. They are somewhat elaborately engraved. When casually viewed, they at once strongly suggest that they are negotiable securities, issued with a view that they are to go out into the market and their title pass by mere delivery from hand to hand as such securities. On November 7, 1923, respondent had become the owner and holder of the 12 bonds in question. On that day the bonds were forcibly stolen from the possession of the respondent's agent by armed bandits on the streets of Seattle. Three months later, on February 13, 1924, appellant purchased the bonds in the open market from a well-known and highly respected bondhouse of Seattle, paying therefor their market value, at which time appellant had no knowledge or reason to believe that the bonds had been stolen, and no notice of any defect or infirmity in the title thereto in the bondhouse from which the bonds were so purchased, or in any prior holder. Soon thereafter respondent learned of the bonds having passed into the possession and claim of ownership of the appellant. This action followed, with the result we have already noticed.

Since appellant purchased the bonds in good faith, for value, before maturity, it thereby became the holder of them in due course; and, if the bonds are negotiable, in the sense in which that quality has to do with the transfer of title, then appellant acquired good title to the bonds, though respondent lost possession of them by theft. This proposition, as we understand counsel for respondent, is conceded by them. Indeed, this has become the settled law of this state, as it has elsewhere in this country. Fidelity Trust Co. v. Palmer, 61 P. 158, 22 Wash. 473, 79 Am. St. Rep. 953; Angus v. Downs, 147 P. 630, 85 Wash. 75, L. R. A. 1915E, 351; Marcus v. Ofner, 175 P. 31, 103 Wash. 478; Woodworth v. School District No. 2, 175 P. 321, 103 Wash. 677; Manker v. American Savings Bank & T. Co., 230 P. 406, 131 Wash. 430; 3 R. C. L. 1000.

We deem it appropriate to here note that our decisions in Fidelity Trust Co. v. Palmer, Marcus v. Ofner, and Woodworth v. School District plainly recognize that an instrument may be negotiable, in so far as that quality has to do with transfer of title, and at the same time not be negotiable, in so far as that quality has to do with defenses the maker may have against the obligation the instrument evidences. In the Fidelity Trust Co. Case it was said:

'The great weight of authority is that a county or city warrant possesses all of the qualities of negotiable paper but one, viz. that it is open to any defense which might have been made to the claim upon which it is founded. For all purposes involving its title, it must be treated as negotiable.'

The law, as thus announced, is quoted with approval in both the Marcus and Woodworth Cases. It was this view of the law that prompted the dissent by the writer of this opinion in Manker v. American Savings Bank & T. Co. That case, however, was decided by the majority upon the theory that the instruments there in question, the local improvement bonds, were clearly not unconditional promises of the city, but only promises to pay from a special local improvement fund which it, the city, was to collect and hold in trust for the payment of the local improvement obligations. But our former decisions are still authority for the proposition that an instrument may be negotiable, in so far as that quality has to do with transfer of title, and at the same time not negotiable, in so far as that quality has to do with defenses the maker may have against the obligation which the instrument evidences.

Now it may be that the language of an instrument should be viewed somewhat critically and construed rather strictly touching the question of the negotiability of the instrument, when there is drawn in question the maker's claimed right to set up a defense against the obligation it evidences, because such right is to be denied only when there remains no uncertainty as to the instrument being negotiable. But when there is drawn in question only the title to an instrument made payable to bearer, issued with the manifest intent that it is to go out into the market to be transfered by mere delivery, the courts, we think, should construe the language of the instrument with all possible liberality looking to its negotiability for purpose of such transfer of title. This, we think, is the attitude of mind in which we should approach our present inquiry.

The bonds contain, among other provisions, the following:

'All interest which shall accrue hereon shall be paid without deduction of any amount for any income tax, not in excess of a sum equal to 2 per cent. of such interest, which the Pacific Company may be required or permitted to retain therefrom or to pay thereon under any present of future law of the United States of America.'

It is argued in behalf of respondent that this language imposes upon the Pacific Company, the promisor, the added uncertain burdens, over and above the indebtedness specified in each bond, of paying possible taxes upon the interest installments, chargeable to the holder. We do not so read this provision. The promise is not to pay any possible taxes chargeable against the holder, but only to pay the interest without any deduction therefrom 'which the Pacific Company may be required or permitted to retain therefrom or to pay thereon under any present or future law of the United States.' This, we think, is not a promise to pay anything...