Santa Marina Co. v. Canadian Bank of Commerce

• Decision Date: 22 October 1918
• Docket Number: 3113.
• Citation: 254 F. 391
• Parties: SANTA MARINA CO. v. CANADIAN BANK OF COMMERCE. [1]
• Court: U.S. Court of Appeals — Ninth Circuit

254 F. 391

SANTA MARINA CO. v. CANADIAN BANK OF COMMERCE. ^[1]

No. 3113.

United States Court of Appeals, Ninth Circuit.

October 22, 1918

E. W McGraw and J. E. Barry, both of San Francisco, Cal., for appellant.

Gavin McNab, R. P. Henshall, and Nat Schmulowitz, all of San Francisco, Cal., for appellee.

Before GILBERT, MORROW, and HUNT, Circuit Judges.

MORROW Circuit Judge.

This is a suit in equity, in which the appellant, the Santa Marina Company, as plaintiff, brought suit against the appellee, the Canadian Bank of Commerce, as defendant, to obtain a decree declaring the defendant the trustee of a fund amounting to $6,775.98.

One R T. Hooper was the secretary of the plaintiff corporation from September 21, 1906, until he resigned, on March 17, 1913. During this period the plaintiff was the owner of two pieces of property located in the city of San Francisco. One piece is referred to in the testimony as the 'Santa Marina Building'; the other, as the 'Front Street Building.' The first yielded to the plaintiff an income from rentals amounting approximately to $4,000 per month; the other rental amounting to about $300 per month. Two real estate firms in San Francisco acted as the agent of the plaintiff in collecting the rents from these two buildings respectively; the rents being paid in checks drawn by the agents in favor of the plaintiff, and delivered to Hooper as secretary of the plaintiff. His function was to indorse these checks and deposit them to the credit of the plaintiff in its bank, which at first was the Mercantile Trust Company of San Francisco, and afterwards the Mercantile National Bank of San Francisco. His failure to so deposit 21 checks, amounting to $6,775.98, and his action in depositing them to his own credit with the defendant, has given rise to the present controversy.

These 21 checks are identified as having been drawn by Bovee, Toy &amp Co., plaintiff's agent in collecting the rents from the Front Street Building. They were drawn in favor of plaintiff on the Bank of California, and delivered to Hooper as the secretary of the plaintiff, who indorsed them in blank in plaintiff's name and deposited them to his own credit in the defendant bank. The defendant in the usual course of business passed these checks through the clearing house, and they were paid by the Bank of California. The first check was deposited by Hooper with the defendant on December 31, 1907, and the last on March 23, 1911. Hooper was elected secretary of the plaintiff September 21, 1906, and resigned March 17, 1913. The plaintiff did not discover that Hooper had deposited these checks with the defendant until April 2, 1913. This suit was commenced January 26, 1914.

In the allegations of the complaint it is alleged that each check was drawn in favor of the Santa Marina Company. In 12 checks, the indorsement appeared to be the 'Santa Marina Company,' and in 9 the indorsement is 'Santa Marina Co.' It is alleged with respect to each separate check that the indorsement was made by R. T. Hooper, and it so appears in the indorsements set out in the record. In 5 indorsements R. T. Hooper adds the title of his authority as 'Secretary'; in 11 he abbreviates it as 'Secy.,' and in 3 as 'Sec.' These variations in the form of the indorsements on the checks are of no significance in the routine of passing title to checks in the banking business. They were all in effect the indorsements of the name of the 'Santa Marina Company, by R. T. Hooper, Secretary,' and would be so recognized in any business transaction.

This is a suit in equity, in which the plaintiff seeks to recover upon the charge that the defendant was a trustee for the plaintiff for the sums of money represented by these checks. To raise such a trust it was necessary for the plaintiff to allege that Hooper, without the knowledge and consent of the plaintiff, had indorsed the checks in the name of the plaintiff and deposited them to his own credit with the defendant. It was also necessary to allege that the defendant, well knowing that said checks and the moneys they represented were the property of the plaintiff, placed the same to the personal account of Hooper. In the complaint the plaintiff so alleges with respect to each of the checks. In defendant's answer these allegations are specifically denied, raising an issue which we think is the controlling question in this case.

Hooper was the secretary of the plaintiff, and in that capacity he indorsed the checks. Mr. E. W. Hopkins, the president of the plaintiff corporation during the time Hooper was its secretary, testified that the duties of the latter 'were to take care of the accounts of the corporation and take care of its cash, etc. ' He supposed that Hooper's authority as secretary 'was the usual authority that secretaries have. ' The by-laws of the corporation provided that the board of directors should elect a secretary, whose duties were specified in several particulars; among other things it was provided:

'He shall keep proper account books, countersign all checks drawn upon the treasury, and discharge such other duties as pertain to his office and are prescribed by the board of directors.' Hopkins testified:

'I must have known that he (Hooper) was receiving checks from Bovee, Toy & Co. on account of the rents. The money of the Santa Marina Company was supposed to be deposited with the Mercantile Trust Company, and subsequently with the Mercantile National Bank. No other place was authorized for such deposits. I cannot tell you whether authority was given Hooper to indorse checks of the Santa Marina Company with the Mercantile National Bank, specially by resolution, or not. * * * I believed he was indorsing checks and depositing them with the Mercantile National Bank. I never objected to his doing so. Do not know if any other director objected to it.'

H. A. Coggins, a director of the plaintiff corporation and the successor of Hooper as its secretary, testified that he 'believed Hooper had no authority to deposit checks with the Canadian Bank of Commerce,' and he believed Hooper was 'supposed to deposit all checks in the Mercantile National Bank. ' That Hooper was authorized to indorse checks with the knowledge and consent of the president and board of directors of the corporation is established by this testimony, and by the fact that he did so in transacting plaintiff's business for the period of more than five years. The checks deposited with the defendant by Hooper were negotiable instruments. The indorsements were general (section 3112, California Civil Code), and were made by authority.

It is true plaintiff's president and board of directors supposed Hooper deposited the checks with plaintiff's banks, but this was far from so limiting his authority. His authority to indorse the checks in blank was complete. Where he should deposit the checks was another matter, concerning which there was no express restriction. Plaintiff's officers may have supposed that they had limited his authority to the depositing of the checks in plaintiff's bank, but there is no evidence that they actually did so, or that they required him to so indorse plaintiff's checks. It follows that, when Hooper tendered the checks in question to the defendant for deposit to the credit of his own account, the title passed on delivery, unless defendant had timely notice that Hooper had no title to them, or there was some act of bad faith on the part of the defendant in receiving the checks. There is no such evidence in the record.

In Murray v. Lardner, 2 Wall. (69 U.S.) 110, 17 L.Ed. 857, the Supreme Court had before it the question of the title to certain coupon bonds payable to bearer, which had been stolen from the defendant in error and pledged to the plaintiff in error for a loan. The court reviewed the decisions upon the transfer of commercial or negotiable paper, and concluded by stating the following propositions:

'The possession of such paper carries the title with it to the holder. 'The possession and title are one and inseparable.' The party who takes it before due for a valuable consideration, without knowledge of any defect of title, and in good faith, holds it by a title valid against all the world.

'Suspicion of defect of title, or the knowledge of circumstances which would excite such suspicion in the mind of a prudent man, or gross negligence on the part of the taker, at the time of the transfer, will not defeat his title. That result can be produced only by bad faith on his part.' In Hotchkiss v. National Bank, 21 Wall. (88 U.S.) 354, 359, 22 L.Ed. 645, the controversy also related to the title to certain coupon bonds stolen from the owner and pledged as collateral securities. The court said:

'The law is well settled that a party who takes negotiable paper before due for a valuable consideration, without knowledge of any defect of title, in good faith, can hold it against all the world. A suspicion that there is a defect of title in the holder, or a knowledge of circumstances that might excite such

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