German-American Bank of Seattle v. Wright

• Decision Date: 12 May 1915
• Docket Number: 12501.
• Citation: 148 P. 769,85 Wash. 460
• Parties: GERMAN-AMERICAN BANK OF SEATTLE v. WRIGHT et al.
• Court: Washington Supreme Court

148 P. 769

85 Wash. 460

GERMAN-AMERICAN BANK OF SEATTLE v. WRIGHT et al.

No. 12501.

Supreme Court of Washington

May 12, 1915

Department 2. Appeal from Superior Court, King County.

Action by the German-American Bank of Seattle against A. H. Wright and another. Judgment for plaintiff, and defendants appeal. Affirmed.

Farrell Kane & Stratton, of Seattle, for appellants.

Geo. D Emery, of Seattle, for respondent.

ELLIS J.

This is an action to recover upon a check drawn by the defendant Wright upon the Lincoln County Bank of Merrill, Wis., payable to the defendant Cavette, and by him indorsed to the plaintiff. The facts are these:

On February 21, 1912, Wright, in the city of New York, made his ordinary bank check of that date upon his bank of deposit in Merrill, Wis., to the order of the defendant Cavette, for $5,000, and delivered it to Cavette. At that time Cavette who was engaged in an effort to reorganize a certain fisheries company, agreed to deliver to the defendant Wright $15,000 worth of the fisheries stock about 60 days from the date of the check. Cavette testified that the check was given on account of this contract and as part payment on the stock; that the reorganization was to be completed about April 1st, and the stock was to be delivered about April 21, 1912; and that, in case he did not deliver the stock, he was to return the check to the defendant Wright. He also testified, and the fact is not disputed, that at the time of receiving Wright's check he (Cavette) gave to Wright his own check for the same amount drawn on the plaintiff bank as security to Wright that Cavette would carry out the contract. Cavette returned to his home in Seattle about March 1, 1912, and about March 30th solicited a loan of $700 from the plaintiff bank. He was already indebted to the bank in the sum of $1,800, and the loan was declined unless he would give security, not only for the $700, but also for this antecedent indebtedness. He thereupon offered this check as security, promising to repay the whole debt, including the $700, in 20 days, and requested the bank to hold the check that length of time, agreeing to take it up, together with his note, at the end of that period. The bank officials, knowing that Wright was solvent, and, as the cashier testified, believing the check good, loaned Cavette the additional $700, taking his note therefor, due in 20 days, and extending the time of payment of the former indebtedness of $1,800 for the same time; Cavette indorsing the check to the bank as collateral for the loan and the extension. The transaction was negotiated through the bank's cashier acting for the bank. Cavette testified that he told the cashier that the check was a contract check, and that, if he delivered the stock, he was to get the money; that he did not go into details, but simply told the cashier that it was a contract check and that he had to deliver the stock to Wright; that he asked the cashier to hold the check for 20 days as collateral to the loan, and that he thought he would be able to finish the whole transaction within 20 days; that nothing was said as to what was to become of the check at the end of that time, but that he (Cavette) expected to take up the note and check before that time, and, if he failed to do so, he supposed that the natural proceeding would be for the bank to send the check on for collection. Cavette further testified that at one time Wright had made a deposit in the bank to Cavette's credit, but that it was not to take care of any obligation to the bank. Wright testified that the cheek was not to be used for any purpose until Cavette delivered the stock to him; that the stock was to be delivered within 60 days, and, if not then delivered, the check was to be returned. It is admitted that the stock was never delivered.

The bank held the check until April 22d when, the note to which it was held as collateral being unpaid, the plaintiff bank wired the Wisconsin bank on which the check was drawn inquiring whether there were funds there to meet it, and at first received an affirmative reply, but later in the day received a further message that payment on the check had been stopped by Wright. The check was then forwarded for collection, payment was refused, and the check protested. This suit was then brought against Wright, as maker, and Cavette, as indorser, of the check; the plaintiff suing as owner. In their answers both defendants alleged that the check was taken by the bank as collateral security, and this fact, as we have seen, was established by the evidence. The case was tried to the court without a jury. The court found that the bank was a holder in good faith for value and without notice of any equities between Wright and Cavette; that it received the check as collateral to the prior debt and the loan in the usual course of business. Judgment was rendered for the plaintiff against both of the defendants for the amount of the loan and the antecedent debt, aggregating $2,500, with interest from the date of presentment, and the protest fees. Both defendants have appealed.

It is claimed: (1) That there was such a variance between the pleadings and the proof as to amount to a failure of proof; (2) that the respondent was not a holder in due course and for value, hence was not entitled to recover on the check as against the appellant Wright.

1. The complaint in effect alleged that the bank was the unqualified owner of the check. The answer alleged that the check was held by the bank as collateral. The reply alleged that the check was taken on deposit. The appellants contend that the complaint tendered one issue, the reply another, and that the proof sustained neither. Looking to the substance of the thing, there is no merit in this contention. The complaint tendered an issue of unqualified ownership in the bank. The answer pleaded the fact that the bank held the check as collateral only. The evidence sustained the latter view. The pleadings presented as the real issue the quality of the bank's possession. That was the issue which was tried. When we can say with certainty that a definite issue has been presented and tried, we do not indulge nice distinction touching technical variations in the pleadings or between the pleadings and the proof. We proceed, as directed by the statute, to a decision of the case on its merits, disregarding all technicalities, and considering all amendments which could have been made as made. Rem. & Bal. Code, § 1752; Yeisley v. Smith, 144 P. 918; Gaskill v. Northern Assurance Co., 73 Wash. 668, 132 P. 643; Kelly v. Lum, 75 Wash. 135, 134 P. 819, 49 L. R. A. (N. S.) 1151; Bonne v. Security Savings Society, 35 Wash. 696, 78 P. 38. A variance, to be material, must have actually misled the adverse party to his prejudice in maintaining his action or defense on the merits. The burden is upon him to show that he was so misled. The statute so declares. Rem. & Bal. Code, § 299. In this case it is obvious that the appellants were not misled. Whatever was lacking in the complaint to present the issue tried was supplied by their answers. Butterworth & Sons v. Teale, 54 Wash. 14, 102 P. 768, 18 Ann. Cas. 854; Wheatman v. Kane, 55 Wash. 226, 104 P. 258.

2. The second question as to whether the respondent was a holder for value in due course is twofold:

(a) The appellants claim that respondent was not a holder for value because it held the check as collateral in part to an antecedent debt. Our statute, however, effectually disposes of this question, contrary to the appellants' claim. The Negotiable Instruments Act, reference being made to 2 Rem. & Bal. Code by section numbers, reads:

'Sec. 3415, Every negotiable instrument is deemed prima facie to have been issued for a valuable consideration; and every person whose signature appears thereon to have become a party thereto for value.

'Sec. 3416. Value is any consideration sufficient to support a simple contract. An antecedent or pre-existing debt constitutes value; and is deemed such whether the instrument is payable on demand or at a future time.

'Sec. 3417. Where value has at any time been given for the instrument, the holder is deemed a holder for value in respect to all parties who became such prior to that time.

'Sec. 3418. Where the holder has a lien on the instrument, arising either from contract or by implication of law, he is deemed a holder for value to the extent of his lien.'

Clearly the respondent had a lien on the instrument arising from contract, and, as declared by the last section above quoted it was a holder for value to the extent of that lien. This is the federal rule first announced by the Supreme Court of the United States, speaking through Mr. Justice Story in Swift v. Tyson, 16 Pet. 1, 10 L.Ed. 865, in 1842, and continuously followed by the federal courts and the courts of many states since. The discussion invited by the appellants of the relative merits of the federal rule and the former New York rule as declared by Chancellor Kent in Bay v. Coddington, 5 Johns. Ch. (N. Y.) 54, 9 Am. Dec. 268, would be a purely academic exercise, since the contract of indorsement was made in this state, and our statute is controlling as to its effect. The same is true as to the rule in Wisconsin. Moreover, even assuming that the law of either New York or Wisconsin would govern, the law of neither of those states was either pleaded or proved. We would therefore assume that the present law of both is the same as our own. As a matter of fact, the present Negotiable Instruments Acts of both those states contain sections identical with our section 3418, above quoted. 2 Revised Statutes, Codes and General Laws of New York (3d Ed.) c. 50, art. 3, par. 53; Wisconsin Statutes 1913, c. 78, § 1675-53. The Supreme...