Desert Bermuda Properties v. Union Bank

• Decision Date: 23 August 1968
• Court: California Court of Appeals Court of Appeals
• Parties: DESERT BERMUDA PROPERTIES, a corporation, and Southern California Aircraft Corporation, Plaintiffs, Respondents, and Cross-Appellants, v. UNION BANK, a California corporation, Defendant, Appellant, and Respondent. DESERT BERMUDA PROPERTIES, a corporation, and Southern California Aircraft Corporation, Plaintiffs, Cross-Defendants, and Respondents, v. Eugene J. WEINBERGER, Cross-Complainant and Appellant. Civ. 31241, 31259.

Page 93

71 Cal.Rptr. 93

265 Cal.App.2d 146

DESERT BERMUDA PROPERTIES, a corporation, and Southern California Aircraft Corporation, Plaintiffs, Respondents, and Cross-Appellants, v. UNION BANK, a California corporation, Defendant, Appellant, and Respondent.

DESERT BERMUDA PROPERTIES, a corporation, and Southern California Aircraft Corporation, Plaintiffs, Cross-Defendants, and Respondents, v. Eugene J. WEINBERGER, Cross-Complainant and Appellant.

Civ. 31241, 31259.

Court of Appeal, Second District, Division 2, California.

Aug. 23, 1968.

Rehearing Denied Sept. 18, 1968.

Hearing Denied Oct. 17, 1968.

Loeb & Loeb, by Robert A. Holtzman, Los Angeles, for appellant Union bank.

Pacht, Ross, Warne, Bernhard & Sears, Henry J. Shames, Conrad L. Klein, Ira H. Lurvey, Los Angeles, for appellant Weinberger.

Milo V. Olson, Los Angeles, for cross-appellants Desert Bermuda Properties and Southern California Aircraft Corp.

FLEMING, Associate Justice.

I

Desert Bermuda Properties and Southern California Aircraft Corporation (collectively hereafter Desert Bermuda) sued Union Bank for trust funds wrongfully used. Union Bank cross-complained against Eugene Weinberger, and Weinberger in turn cross-complained back against Desert Bermuda. From a summary judgment for $27,471 in favor of Desert Bermuda, Bank appeals. From the computation of interest on the judgment, Desert Bermuda appeals. From the judgment as it affects him, Weinberger appeals.

Desert Bermuda's complaint alleged:

On 4 April 1961 Desert Bermuda sold to Serdon Developments, Inc. (hereafter Serdon) its interest in certain aircraft equipment and a lease at Ontario International Airport, and entered a sublease with Serdon.

To assure payment of the purchase price and of the rent under the sublease, Serdon by letter promised Desert Bermuda to deposit 85 per cent of the receipts from the sale of the aircraft equipment in a special account at Bank.

Serdon defaulted in its payments to Desert Bermuda.

Serdon's president, Fraser, on 7 August 1961 informed Desert Bermuda that $24,000 from Serdon's sale of aircraft equipment was on deposit at Bank, that the officers and directors of Serdon were about to disburse these funds in violation of Serdon's promise to hold them for Desert Bermuda.

Desert Bermuda notified Bank by letter of 8 August of Serdon's promise, and claimed equitable ownership of the money in Serdon's account.

On 4 April 1961, Messrs. Weinberger, Gardner, Hester, Van Woerkom, and Fraser had personally borrowed $100,000 from Bank and given Bank a joint promissory note.

On 7 August 1961 Bank received a check drawn on Serdon's account for.$23,500, which it applied on the principal of the $100,000 joint promissory note.

After receiving Desert Bermuda's letter of 8 August, Bank, 'to aid and abet the individual officers of Serdon to wrongfully use the funds', voided the check of 7 August and returned the funds to the account. Bank caused Hester and Gardner to write a new check on the account payable to themselves and to endorse this check to Bank. The new check, although dated 7 August, was actually written on or after 9 August.

On 15 August 1961, Desert Bermuda sued Serdon for $350,000.

Bank's answer admitted the $100,000 loan, the receipt of Desert Bermuda's letter of 8 August, the receipt of the first Serdon check, the return of the first check to Weinberger and Gardner, and the replacement of the first check by a second check from Serdon. Bank affirmatively pleaded the bar of the statute of limitation and the benefit of a release given the officers and directors of Serdon by Desert Bermuda.

Both parties moved for summary judgment.

In support of its motion, Desert Bermuda submitted a declaration of Fraser, stating:

On 7 August, the Serdon account had a balance of $24,000.

On 4 August, Fraser telephoned Siegel, Bank's vice president, and said that funds in the account should be left intact because of an escrow involving the sale of Serdon and because the funds equitably belonged to Desert Bermuda. Siegel replied he could not accept this information from Fraser, but would rely on Weinberger and Gardner.

Hester and Gardner were authorized signators on the account; no checks were authorized without Hester's signature.

Checks amounting to $24,000 were drawn by Serdon in favor of Bank and applied against the joint promissory note, but these first checks were signed by Weinberger and Gardner, not by Hester.

These checks were later voided, and new Serdon checks, signed by Hester and Gardner, were drawn in favor of Hester and Gardner and endorsed by them to Bank.

Bank submitted declarations of Siegel and its counsel to the following effect:

Siegel had no recollection of any conversation with Fraser on 4 August, and he was confident that if such a conversation had taken place he would remember it.

Siegel received Desert Bermuda's letter of 8 August on 9 August, but Bank could not dishonor a depositor's check solely on the strength of a letter from a lawyer.

That same day Siegel noted that the first Serdon checks were not signed by Hester. He called Weinberger and told him prompt delivery of properly signed checks would permit the bank's entries to remain undisturbed. Under Bank policy corporate checks would not be accepted in payment of individual indebtedness of corporate officers to Bank, unless made out to them individually and endorsed by them in favor of Bank. Siegel requested that new checks be drawn to comply with Bank policy.

Bank's only knowledge of the relationship between Serdon and Desert Bermuda, other than Desert Bermuda's letter of 8 August, was awareness that the individual borrowers of $100,000 had apparently lent the borrowed money to Serdon by paying it by cashier's check to Desert Bermuda for Serdon's purchase of facilities at Ontario International Airport.

Serdon's account with Bank was an ordinary commercial account, without special designation, which had been used for numerous routine transactions, including payment of interest on the $100,000 joint promissory note on 3 May, 2 June, and 30 June 1961; so far as Bank knew Serdon's funds were ordinary business funds. Bank had never been advised of any agreement between Serdon and Desert Bermuda to maintain a special account with Bank.

In seeking to reverse the summary judgment in favor of Desert Bermuda, Bank contends, among other things, that the judgment did not take into account section 952, Financial Code, which, in relevant part, provides:

'Notice to any bank of an adverse claim * * * to a deposit * * * may be disregarded until and unless the adverse claimant shall (obtain a court order, or give a bond, or deliver an affidavit of fiduciary relationship) * * * The provisions of this section shall be applicable even though the name of (the account holder) * * * is modified by a qualifying or descriptive term such as 'agent,' 'trustee,' * * * indicating that such person may not be the owner in his own right of the deposit * * *'

Desert Bermuda, clearly an adverse claimant within the meaning of section 952, never obtained a court order directed against Bank, nor did it deliver a bond to indemnify Bank against loss, nor did it deliver an affidavit setting forth a claim of fiduciary relationship. Accordingly, Bank argues it was entitled to disregard Desert Bermuda's claims.

Desert Bermuda concedes that if the checks had been issued to satisfy claims of strangers to the account, Bank could have honored the checks and disregarded the demands of adverse claimants and in so doing would have been protected by section 952. But, it argues, Bank could not rely on the statute to protect its use of these funds to satisfy its own claims, because (a) it knew that corporate officers could not use corporate funds to satisfy their personal indebtedness, and (b) section 952 does not apply when a bank obtains or appropriates moneys on deposit in order to satisfy the depositor's indebtedness to it.

The first argument is refuted by section 953, Financial Code:

'When the depositor of a commercial or savings account has authorized any person to make withdrawals * * * the bank, in the absence of written notice otherwise, may assume that any check, * * * drawn by such person in the authorized form * * * including checks drawn to his personal order and withdrawal orders payable to him personally, was drawn for a purpose authorized by the depositor and within the scope of the authority conferred upon such person.'

Bank was not required to inquire into the financial relationship of Serdon and its officers and directors acting within the scope of their conferred authority until Bank received notice that their authority had been revoked or Bank officially learned that authorization never existed. Under the statute it is clear Bank was entitled to recognize the authority of Serdon's officers to write checks payable to themselves and to use those checks to satisfy their own obligations. We see no reason to distinguish between the authority of officers to draw on an account for the ultimate benefit of outside creditors and their authority to draw on the account to satisfy indebtedness owed the bank itself. (See Boston Insurance Co. v. Wells Fargo Bank, 80 Cla.App.2d 59, 181 P.2d 84.) In both cases Bank could continue to recognize the authority of Serdon's officers to draw on its bank account for whatever purposes they chose.

We need not rest our decision entirely on the authority of this general rule, however, for in the case at bench the facts themselves strongly suggest the fitness and propriety of payments from the Serdon account on the individual promissory note held by Bank. It appeared to Bank, and on the record it appears to us, that the indebtedness under the individual promissory note was assumed for corporate purposes that the officers and directors of Serdon had lent their individual credit for Serdon's benefit, that Serdon had in fact received the entire proceeds of the loan, an appearance fortified...