Casten v. Kreipe

• Decision Date: 11 February 1928
• Docket Number: 27,814
• Citation: 264 P. 55,125 Kan. 182
• Parties: ALBERT M. CASTEN, Appellee, v. R. T. KREIPE (CHARLES W. JOHNSON substituted), as Receiver, etc., and C. J. PETERSON (ROY L. BONE substituted), as Bank Commissioner, etc., Appellants
• Court: Kansas Supreme Court

264 P. 55

125 Kan. 182

ALBERT M. CASTEN, Appellee, v. R. T. KREIPE (CHARLES W. JOHNSON substituted), as Receiver, etc., and C. J. PETERSON (ROY L. BONE substituted), as Bank Commissioner, etc., Appellants

No. 27,814

Supreme Court of Kansas

February 11, 1928

Decided January, 1928

Appeal from Osage district court; CAREY E. CARROLL, judge.

Judgment affirmed.

SYLLABUS

SYLLABUS BY THE COURT.

BANKS AND BANKING -- Depositors' Guaranty Fund -- Deposits Guaranteed -- Certificates of Deposit Subject to Reformation. A depositor made a time deposit in a bank operating under the guaranty law and now insolvent, on terms which complied with the order of the bank commissioner relating to rate of interest permissible on guaranteed deposits. Through mutual mistake of the parties, the certificate issued to the depositor was framed in such terms it violated the order, and disclosed a deposit not within the protection of the bank guaranty fund. Held, the certificate was subject to reformation to make it express the true terms of the deposit and when so reformed the depositor was entitled to a certificate on the guaranty fund.

William A. Smith, attorney-general, and John G. Egan, assistant attorney-general, for the appellants.

A. K. Stavely, of Lyndon, and F. M. Harris, of Ottawa, for the appellee.

OPINION

BURCH, J.:

The action was one against the receiver of the Farmers State Bank of Quenemo, and the bank commissioner, to reform a certificate of deposit issued to plaintiff by the bank, and to require the bank commissioner to issue to plaintiff a certificate of participation in the bank guaranty fund. Plaintiff prevailed, and defendants appeal.

The certificate bore the number 3,127, was dated March 16, 1921, was for $ 5,500, and was payable to the order of Albert M. Casten. In other respects the certificate was identical in terms with certificate 3,189 for $ 1,285.40, issued on May 31, 1921, by the same bank, to Joel Barrett. The Barrett certificate was considered in the case of Barrett v. Bank Commissioner, 114 Kan. 804, 223 P. 1091. The court held the Barrett certificate was payable on demand, did not conform to the order of the bank commissioner relating to rate of interest demand certificates might bear, and consequently did not entitle the holder to a certificate on the guaranty fund. It follows that the certificate issued to Casten was payable on demand, did not conform to the order of the bank commissioner relating to rate of interest, and would not entitle the holder to a certificate on the guaranty fund. This would not be true if the certificate were payable in not less than three months and not more than two years, and had a definite date of maturity when interest ceased.

Forget the guaranty fund for the present, and consider the case between Casten and the Farmers State Bank of Quenemo, represented by its receiver.

Casten made a deposit in the bank on certain stipulated terms, and received a certificate of deposit supposedly evidencing those terms. What was the nature of that instrument? By the overwhelming consensus of judicial opinion it was a promissory note (7 C. J. 647). A sufficient number of the cases cited in support of the Corpus Juris text, including the case of Blood v. Northup and Chick, 1 Kan. 28, have been examined, to test the text's accuracy. Being payable to order on demand, the certificate was a negotiable instrument, within the negotiable instruments law. (R. S. 52-201; Kirkwood v. First Nat. Bank of Hastings, 40 Neb. 484, 488, 58 N.W. 1016, quoted in the opinion in the Barrett case; Bank v. Dillenbeck, 111 Kan. 98, 205 P. 1022, syl. P 1, 205 P. 1022; Forrest v. Safety Banking & Trust Co., 174 F. 345, and authorities cited in the opinion.)

May a negotiable instrument which through mutual mistake omits or contains terms not according to the agreement of the parties, or which otherwise fails to evidence their intention, be reformed in equity?

"The jurisdiction to grant the relief of reformation may be exercised with respect to written instruments operating inter vivos, whether they are executed contracts, such as deeds of conveyance, mortgages, leases, or executory agreements, such as bonds, policies of insurance, notes, bills of exchange, and the like." (2 Pomeroy's Equity Jurisprudence, 4th ed., § 871, p. 1790.)

Some of the cases in which negotiable instruments have been reformed are: Fuller v. Hawkins, 60 Ark. 304, 30 S.W. 34; Hathaway v. Brady, 23 Cal. 121; Loudermilk v. Loudermilk, 98 Ga. 780, 25 S.E. 927; Fisher v. Barnett, 56 Ill.App. 649; Lee & Jamieson v. Percival, 85 Iowa 639, 52 N.W. 543; Turpin v. Gresham et al., 106 Iowa 187, 76 N.W. 680; Gump's Appeal, 65 Pa. 476; McClure v. Little, 15 Utah 379, 49 P. 298; Stanton v. Caffee and Husband, 58 Wis. 261, 16 N.W. 601; Kropp v. Kropp and others, 97 Wis. 137.

In the case of American Nat'l Bank v. Marshall, 122 Kan. 793, 253 P. 214, this court sanctioned reformation of a promissory note nonnegotiable in form, by inserting words of negotiability.

The nature of an action for reformation is such that it is outside the field of operation of the parol evidence rule. Apparently it has been necessary to say this in most cases in which decrees of reformation have been approved. It has now been said so often the courts should be relieved from encumbering the pages of the reports with citations of authority.

The district court found the deposit actually made was made and accepted as a deposit for the fixed period of six months, and bore interest at the rate of four per cent per annum for that period only; certificate No. 3,127 was prepared and delivered on receipt of the deposit, under the conditions stated; the officers of the bank and the plaintiff believed the certificate correctly evidenced the terms on which the deposit was made and accepted; and the certificate was erroneously written pursuant to the mutual mistake of the parties. The findings were based on ample evidence, one item of which was the bank's time-certificate register containing the record of certificate No. 3,127. The register disclosed the certificate was a time certificate for six months and bore interest at the rate of four per cent. The result is, as between plaintiff and the bank the judgment reforming the certificate to state the true terms of the actual deposit was warranted by the law and the evidence.

The contentions of the bank commissioner concerning the relation of reformation of the certificate to the guaranty fund may now be examined.

It is said that reformation would prejudice other banks which contributed to the guaranty fund. The parties entered into the following stipulation which disposes of that subject:

"During the time mentioned in the plaintiff's petition, the plaintiff had money deposited in the Farmers State Bank of Quenemo, Kansas, represented by certificates of deposit in said bank in the form set out in plaintiff's petition. That during all of said times such deposits were from time to time reported by the Farmers State Bank of Quenemo to the bank commissioner of the state of Kansas as a part of the average guaranteed deposits of said bank, and said bank paid to the bank guaranty fund assessments upon an amount reported by it as its average guaranteed deposits, which included the amount of the plaintiff's deposits."

It is said reformation would prejudice other depositors having claims on the vanishing guaranty fund. In support of this contention, the case of Hollinger v. Imperial Warehouse Co., 122 Kan. 709, 253 P. 215, is cited, in which reformation of a mortgage, to the injury of a purchaser and a mortgagee for value without notice, was not permitted; and the text of 23 R. C. L., section 33, pages 339 and 340, is quoted to the effect that reformation will not be permitted to the injury of innocent third persons, such as purchasers, lien holders, and others who have acquired intervening interests, without notice, actual or constructive. In this instance, what depositor, in what failed bank, stands in the shoes of a purchaser by deed mortgage, or other mode of acquisition, for value and without notice, of an interest in the guaranty fund? What depositor in any failed bank made his deposit, and thereby acquired his interest in the guaranty fund, relying on the fact that the original certificate of deposit issued by the Quenemo bank to Albert M. Casten would not entitle Casten to participate in the guaranty fund if the bank failed? The pleading and proof show none, the court knows of none, and the particular authorities cited must wait for application until some case arises in which a depositor acquired his interest in the guaranty fund by some form of innocent purchase, or in which a depositor is qualified to defend his interest by invoking equitable estoppel....