Dunlap v. Seattle Nat. Bank

• Decision Date: 06 December 1916
• Docket Number: 13105.
• Citation: 161 P. 364,93 Wash. 568
• Parties: DUNLAP v. SEATTLE NAT. BANK.
• Court: Washington Supreme Court

161 P. 364

93 Wash. 568

DUNLAP v. SEATTLE NAT. BANK.

No. 13105.

Supreme Court of Washington, En Banc.

December 6, 1916

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

Action by James Dunlap, as trustee in bankruptcy, against the Seattle National Bank. Judgment for the plaintiff for a part only of the amount claimed, and both parties appeal. Affirmed.

J. L Corrigan and E. C. Million, both of Seattle, and Thomas Smith, of Mt. Vernon, for appellant.

Oldham & Goodale, of Seattle, for respondent.

MAIN J.

This action was instituted by the trustee in bankruptcy of the estate of W. E. Schricker and L. L. Andrews, copartners doing business as W. E. Schricker & Co., and W. E. Schricker and L L. Andrews, individually. In the amended complaint two causes of action are stated.

In the first it is charged that W. E. Schricker and the officers of the defendant, the Seattle National Bank, entered into a fraudulent scheme and conspiracy whereby it was agreed between the parties thereto that the defendant bank would advance a sufficient amount of cash to enable Schricker to keep the Schricker & Co. bank open for the reception of deposits, and that these deposits, when received, should be transferred to the Seattle National Bank for the purpose of paying the indebtedness owing to that bank by the Schricker bank. It is further alleged that in pursuance of this scheme or conspiracy more than $200,000 was received by Schricker, and in turn transferred to the Seattle National Bank.

In the second cause of action it is alleged that during the four months preceding the date when the petition in bankruptcy for the Schricker bank was filed the Seattle National Bank received deposits from the Schricker bank in excess of $100,000 and a note and mortgage for the sum of $9,000. It is claimed that these remittances and the mortgage were voidable preferences under the federal Bankruptcy Act.

Upon the first cause of action a judgment is prayed for in the sum of $142,961.85, and upon the second cause of action $127,038.15.

After the issues were framed, over the objection of the plaintiff the cause was tried to the court without a jury, and resulted in a judgment denying any recovery upon the first cause of action, and awarding judgment against the defendant in the sum of $3,485; this being the amount of certain checks collected by the defendant on the day that the Schricker bank ceased to do business, and after the Seattle National Bank had knowledge that it had closed its doors. From this judgment, both parties appeal.

The record is long, and the briefs are exceedingly large. The facts are complicated, and, in an opinion of reasonable length, they cannot be stated in great detail. The facts which will give an understanding of the questions to be determined may be stated as follows: During the year 1889 R. E. Schricker and L. L. Andrews formed a copartnership for the purpose of conducting a private bank at La Conner, Wash., under the name of W. E. Schricker & Co. Soon after this bank began to do business the Puget Sound National Bank, located at Seattle, Wash., became its correspondent in that city. The Schricker bank was located in one of the richest agricultural communities of the state. Its customers were largely substantial and well-to-do farmers and some small merchants. During the year 1898 the Schricker bank became involved with one R. P. Thomas, who at the time was operating a sawmill at or near Anacortes, Wash., which will hereafter be referred to as owned by the Fidalgo Mill Company. The relation between the bank and the mill company continued, and the indebtedness from the mill company to the bank increased from time to time. In April, 1909, the mill company was owing the Schricker bank upon notes approximately $159,000, and an equal or greater amount by way of an overdraft. On April 29, 1909, Schricker applied to the Puget Sound National Bank for permission to overdraw his account with that bank, stating that he did not think he would need to exceed $15,000. This permission was granted.

On May 16, 1910, the Puget Sound National Bank and the Seattle National Bank were consolidated under the name of the latter, and the Seattle National Bank became the correspondent of the Schricker bank, as the Puget Sound had theretofore been. At this time there was an overdraft in favor of the Schricker bank in the sum of approximately $55,000. On November 22, 1910, this overdraft had reached the sum of $102,000, and on this day a letter was written by the vice president of the Seattle National Bank to the Schricker bank, stating that in advancing funds that bank preferred that it be arranged in another manner 'instead of carrying it as an overdraft.' On December 3, 1910, the overdraft having reached the sum of $106,298.59, five notes were given to cover this amount, four for $20,000 each and one for $26,298.59. No security at this time was requested or taken to secure the notes, though Schricker had previously offered certain securities.

After these notes were given, Schricker continued his overdrafts with the Seattle National Bank. Much correspondence took place between the parties, the officers of the Seattle bank objecting to the overdraft, and urging Schricker to renew certain of his paper and send it to them for rediscount. On May 22, 1911, the indebtedness of the Schricker bank to the Seattle bank upon the notes and upon the overdraft was $143,000. The amount which the Seattle National Bank was permitted to loan to any one customer was $120,000. At this time the national bank examiner appeared for the purpose of examining the Seattle National Bank. Some time during the month of May Schricker sent to the Seattle National Bank two notes secured by mortgages for $10,000 each. These notes were transferred to one John Davis or John Davis & Co., and a deposit made showing the reduction of the Schricker account to the extent of the amount of the notes and mortgages. In addition to this, one of the officers of the Seattle National Bank advanced $3,000, which, taken in connection with the mortgages, reduced the Schricker indebtedness to the legal limit of $120,000. On May 29, 1911, Schricker and his wife came to Seattle, and while there met two of the officers of the Seattle National Bank and executed a deed to an interest in certain coal lands in the state of Pennsylvania, which the Schrickers owned, for the purpose of securing the indebtedness of the Schricker bank to the Seattle National Bank.

The overdraft of the Schricker bank continued until about the middle of June, 1911, when the account shows that that bank had a credit balance with the Seattle National Bank. From this time until the middle of August there were times when the account showed an overdraft, and other times when it showed a credit balance. After the middle of August, 1911, the credit balance increased, until, on the 2d day of November, 1911, the Schricker bank had a credit balance with the Seattle National of approximately $97,000, and was owing upon the notes $106,000. Early in November Schricker paid the $26,000 note by a check against his credit balance, and at about the same time took back the two notes and mortgages for $10,000 each, and had his account charged with that sum. After November 2, 1911, when Schricker's credit balance had reached its highest point, it gradually declined until February 17, 1912, when again the overdraft appears.

From this time until the 15th day of May the overdraft was continuous. Correspondence took place between the two banks, the Seattle National urging that the overdraft be taken care of, and Schricker in turn promising that he would send down notes for rediscount, and thus cover it. On April 15, 1912, the overdraft continuing, and the notes not having been sent for rediscount which would cover it, Schricker requested a further overdraft. After this request was received, one of the officers of the Seattle National Bank went to La Conner and saw Schricker in the latter's bank. This officer of the Seattle National had $1,000 in currency with him for the purpose of delivering the same to Schricker when the latter should turn over the notes for rediscount. The meeting occurred in the Schricker bank. The officer of the Seattle National requested that he be permitted to see Schricker's note case, and the latter thereupon got it and placed it upon the table with the remark that the matter was all over, or something to that effect. The officer of the Seattle National opened the note case and learned for the first time that the $159,000 of one-name paper held by the Schricker bank was Fidalgo Mill Company notes, some of which had then been outlawed. The Seattle National Bank declined to make any further advances, and on the day following Schricker's bank closed. All loans and advances by the Schricker bank to the Fidalgo Mill Company were made prior to the time when the Seattle National Bank became the correspondent of that bank. The money advanced by the Seattle National was used by the Schricker bank to meet the demands of its depositors. The petition in bankruptcy was filed on May 22, 1912.

This is but a skeleton of the facts as they appear in the record. Further reference will be made to the facts in connection with the points to which they may be particularly pertinent.

The first question is whether the plaintiff was entitled to a jury trial. The second cause of action may be conceded to be legal in its nature. The first cause of action, if the plaintiff should prevail, would necessarily involve an accounting. If a conspiracy existed, Schricker was a party thereto, and nothing could be recovered on his account. The amount of the recovery arising from the fraudulent scheme or conspiracy as alleged would be the costs...