Felton v. Menan Starch Co.

• Decision Date: 09 September 1965
• Docket Number: No. 37268,37268
• Citation: 405 P.2d 585,66 Wn.2d 792
• Court: Washington Supreme Court
• Parties: Tom FELTON and Eleanor Felton, husband and wife, Frank L. Moore, Michael H. Felton and Marjorie Moore, Respondents, v. The MENAN STARCH COMPANY, Inc., a corporation, Respondent, Basin Produce Company, Inc., a corporation, Respondent and Cross-Appellant, Elmer Hansen, doing business as Elmer Hansen Produce, Respondent, National Bank of Commerce, a corporation, Appellant.

Page 792

66 Wn.2d 792

405 P.2d 585

Tom FELTON and Eleanor Felton, husband and wife, Frank L Moore, Michael H. Felton and Marjorie Moore, Respondents, v. The MENAN STARCH COMPANY, Inc., a corporation, Respondent Basin Produce Company, Inc., a corporation, Respondent and Cross-Appellant Elmer Hansen, doing business as Elmer Hansen Produce, Respondent National Bank of Commerce, a corporation, Appellant.

No. 37268.

Supreme Court of Washington, Department 2.

Sept. 9, 1965.

James B. Strong, Moses Lake, Kerr, McCord & Moen, Seattle, for appellant.

John E. Calbom, Ken Earl, Darrell E. Ries, Joe McAdams, Moses Lake, for respondents.

SOULE, Judge. ¹

The National Bank of Commerce appeals from summary judgments awarded against it in favor of the Menan Starch Company, Inc., (hereinafter called Menan), Basin Produce Company, Inc., (hereinafter called Basin) and Elmer Hansen. Basin cross-appeals from the judgment of the trial court limiting the amount of its recovery against the National Bank of Commerce. The judgments of Menan, Basin and Hansen against the National Bank of Commerce are actually judgments over arising because Felton and Moore recovered primary judgments against Menan, Basin and Hansen. No primary judgment was obtained by Felton and Moore against the National Bank of Commerce. The judgments against the National Bank of Commerce are founded upon two indemnity agreements, the proper understanding of which requires an examination of the unusual factual background of a series of complex commercial transactions.

Felton and Moore owned farm units which were leased to one Charles Davis (hereinafter called Davis) for the crop years of 1957, 1958 and 1959. The leases were in writing and duly recorded on May 29, 1957. They provide that one-fifth of the crops were to be paid to the landlords as rent.

To finance his 1958 operations, Davis sought the assistance of one P. A. Pappageorge, doing business as the West Coast Potato Company, and assigned 50 per cent of the crop to him as security. In turn, Pappageorge obtained a loan of $20,000 from the National Bank of Commerce, which was secured by a crop mortgage on the 50 per cent interest in the crop held by Pappageorge. This mortgage was duly filed on April 14, 1958.

In the fall of 1958, Davis harvested the crop and sold it to various produce companies. Menan paid by three checks totaling $8,915.01, drawn on the Seattle-First National Bank. Each was payable to the West Coast Potato Company, Charles Davis and the National Bank of Commerce. These checks were dated and in the amounts as follows: October 17, 1958--$5,348.54; November 5, 1958--$2,347.77; November 17, 1958--$1,218.70.

Basin paid by three checks totaling $5,234.91 drawn on the Seattle-First National Bank and made payable to the order of Charles Davis, the Seattle-First National Bank, P. A. Pappageorge and the National Bank of Commerce. Two of these checks were paid and only the one dated November 18, 1958, in the amount of.$2,415.05, is directly involved in the present dispute.

Hansen paid by a check dated November 6, 1958, in the amount of $2,656.06 drawn on the National Bank of Washington, payable to the West Coast Potato Company, Charles Davis and the National Bank of Commerce.

The landlords Felton and Moore were not named as payees on any of the checks which were delivered to Davis and Pappageorge. On January 29, 1959, Davis obtained the certification of the drawee bank, Seattle-First National, on the Basin check in the amount of.$2,415.05, and on two of the Menan checks in the amounts of $5,348.54 and $2,347.77. Davis then disappeared apparently taking the checks with him. These checks had not been endorsed by the National Bank of Commerce.

The Menan check for $1,218.70 and the Hansen check for $2,656.06 drawn on the National Bank of Washington came into the possession of the National Bank of Commerce, which caused them to be certified on March 11 and 13, 1959. These checks did not contain the endorsement of Davis. None of the checks, totaling $13,986.12, has been presented for payment.

Having received only $132.67 upon the Pappageorge indebtedness of $20,000, the National Bank of Commerce entered into identical indemnity agreements with the National Bank of Washington and the Seattle-First National Bank, pursuant to which these drawee banks paid over the monies represented by the certified checks. Menan, Basin and Hansen were named as parties to the agreement, although somehow they were not aware of this until just before the trial out of which this appeal has arisen. The agreement with the Seattle-First National Bank was dated November 24, 1959, and the funds were received on November 27, 1959. The agreement with the National Bank of Washington was dated December 4th, and the funds were received on December 17, 1959.

On December 17th, the National Bank of Commerce also received a letter from Hansen advising the bank of the landlord's claim for unpaid rent and stating further 'We shall expect you to take care of the landlord's claim for rent from the funds held in payment of our check if and when those funds come into your possession.'

The proceeds of these funds, together with other small sums received, totaled $14,122.55. The National Bank of Commerce, knowing that by the terms of the agreement between Davis and Pappageorge, each had a one-half interest in this fund, applied one half of the fund directly to the Pappageorge indebtedness. The amount was $7,061.27. The Davis claim to the other half was recognized but the bank, meantime, had come into possession of a note for an additional $5,814.30 executed by Davis to Pappageorge which Pappageorge had already assigned to the bank. This note was discharged by deducting the amount due thereunder from the one half recognized as belonging to Davis, leaving a balance of $1,246.97, which the bank even now recognizes as belonging to Davis. The Pappageorge indebtedness to the National Bank of Commerce is still in excess of $7,000.

So far as the record reveals, matters lay in this condition until September of 1961. The period within which any lien rights could be enforced had long since expired. RCW 60.12.040 and .080. Felton and Moore brought an action against Menan, Basin and Hansen for money judgments based upon the conversion of their share of the crops. Judgments were rendered in favor of Felton and Moore against Menan, Basin and Hansen, but not against the National Bank of Commerce. The Menan judgment was for $1,783, the Basin judgment for $1,046.98, and the Hansen judgment for $531.21, all with interest from the dates of sale of the crop in 1958. At the same time, the court also entered summary judgments based upon the indemnity agreement in favor of Menan, Basin and Hansen and against the National Bank of Commerce as follows: In favor of Menan for $1,783, Basin for $483.01, and Hansen for $531.21, and interest was allowed in each case from the date of the original sale of the crop, together with attorneys' fees of $400 each.

Initially, the National Bank of Commerce and Basin appealed from the primary judgments rendered in favor of Felton and Moore which judgments were based upon the acts of Davis in selling to Menan, Basin and Hansen and which the...