State of Pa. v. Curtiss Nat. Bank of Miami Springs, Fla.

• Decision Date: 08 July 1970
• Docket Number: No. 28543.,28543.
• Citation: 427 F.2d 395
• Parties: STATE OF PENNSYLVANIA, by and through Paul Silverstein, as Special Deputy Insurance Commissioner, Plaintiff-Appellee, v. CURTISS NATIONAL BANK OF MIAMI SPRINGS, FLORIDA, Defendant-Third Party Plaintiff-Appellant-Cross-Appellee, v. NATIONAL WESTERN LIFE INSURANCE COMPANY et al., Third Party Defendants-Appellees-Cross-Appellants.
• Court: U.S. Court of Appeals — Fifth Circuit

427 F.2d 395 (1970)

STATE OF PENNSYLVANIA, by and through Paul Silverstein, as Special Deputy Insurance Commissioner, Plaintiff-Appellee, v. CURTISS NATIONAL BANK OF MIAMI SPRINGS, FLORIDA, Defendant-Third Party Plaintiff-Appellant-Cross-Appellee, v. NATIONAL WESTERN LIFE INSURANCE COMPANY et al., Third Party Defendants-Appellees-Cross-Appellants.

No. 28543.

United States Court of Appeals, Fifth Circuit.

June 4, 1970.

Rehearing Denied July 8, 1970.

Lewis Horwitz, Broad & Cassel, Miami Beach, Fla., Herbert L. Nadeau, Mimi, Fla., for appellant.

Reasbeck, Fegers & Reasbeck, R. Regis Reasbeck, Hollywood, Fla., for State of Pennsylvania.

Shutts & Bowen, Miami, Fla., for National Western Life Ins. Co.

Harvey E. Ford, Hollywood, Fla., for Bruce Cooper.

Before GODBOLD, DYER and MORGAN, Circuit Judges.

LEWIS R. MORGAN, Circuit Judge:

I.

The first part of this appeal deals with an action to recover on a cashier's check issued to a Bruce Cooper as escrow agent for Bankers Allied Mutual Insurance Company (hereafter Bankers Allied) a Pennsylvania corporation, by the Curtiss National Bank of Miami Springs, Florida (hereafter the Bank) brought by the Insurance Department of the State of Pennsylvania as the Statutory Liquidator of Bankers Allied, which has been dissolved under the laws of that state. The Bank advanced the affirmative defenses of failure of consideration; non-performance of conditions precedent allegedly contained in an escrow agreement under which the payee Cooper was to deliver the cashier's check; and that the payee Cooper received the check for a special purpose and was to deliver it for a special purpose, and the special purpose was not accomplished. The District Court found that the provisions alleged to restrict and condition the delivery of the check were not contained in the escrow agreement actually signed by Cooper and that "there was no lack of consideration and that said Cashier's Check was and is a valid instrument past due and unpaid," and entered a judgment against the Bank for $150,000.00, the amount of the cashier's check, plus interest of six per cent per annum from February 27, 1967, the date the Bank refused to pay the check. On appeal, the Bank abandons its conditional delivery defense, but contends that the District Court erred in granting judgment in favor of Pennsylvania on the ground that there was a failure of consideration for the check. We affirm.

An understanding of the underlying financial transactions out of which the issuance of the cashier's check resulted is necessary to place the legal controversy here presented in perspective. Sometime prior to January 10, 1967, a syndicate made up of Fred Investments, Inc., Morris Liebman, The Roberts Company, Inc., and Worthington Sales, Inc. (hereafter, the Borrowers) entered into negotiations with Bankers Allied concerning the purchase of the controlling interest it owned in Bankers & Telephone Employees Insurance Company (hereafter Bankers & Telephone) and the eventual rehabilitation of that company. Both Bankers Allied and Bankers & Telephone suffered from a serious impairment of their capital. Bankers & Telephone had ceased writing insurance on October 25, 1966, upon request of the Pennsylvania Insurance Department, while Bankers Allied had been suspended from operation by the Insurance Department on December 29, 1966. As a result of this state of affairs, it was necessary for the Borrowers to obtain the consent of the Insurance Department for the transfer of Bankers & Telephone stock and comply with whatever preconditions the Insurance Department established before Bankers & Telephone could resume normal business operations. The preconditions established by the Insurance Department were basically that the Borrowers: (1) pay $150,00 in cash to Bankers Allied to purchase its Bankers & Telephone stock; (2) make a $1,000,000 contribution to the capital funds of Bankers & Telephone, consisting of $50,000 cash and $950,000 worth of IBM stock; and (3) replace in Bankers & Telephone's investment portfolio $1,400,000 in cash or securities acceptable to the Insurance Department. Pursuant to these conditions 2600 shares of IBM common stock were deposited in a safe deposit box at the Harrisburg National Bank and Trust Company, Harrisburg, Pennsylvania.

On February 1, 1967, the Borrowers issued a collateral note in the amount of $400,000 to the Bank, and on February 3rd the loan was closed. Under the terms of the collateral note and a collateral pledge agreement entered into on the same day, the Borrowers undertook to repay the $400,000 loan in twenty quarterly installments with interest at 8 per cent per annum and represented that the IBM stock would be placed in the assets of Bankers & Telephone and not be sold, transferred or encumbered in any way, and that Bankers & Telephone would maintain its capital structure in such a way to protect the Bank. The loan was secured by a pledge of 501,000 shares of Bankers & Telephone stock, a first ship mortgage, an assignment of proceeds from an override commission agreement, a security interest in certain equipment and a fidelity bond issued by Bankers & Telephone.

The proceeds of the loan were credited to an escrow account with the Bank, the law firm of Street and Greenfield being named escrow agent for the Borrowers. Street and Greenfield, in turn, drew a check on this account in the amount of $150,000 payable to Bruce Cooper as escrow agent for Bankers Allied, which was used to purchase the cashier's check here in question. Upon receipt of the cashier's check, Cooper, acting under his authority as attorney in fact for Bankers Allied, delivered a total of 586,759 shares of Bankers & Telephone stock, the receipt of which the Bank acknowledged in writing. Cooper delivered the cashier's check to Bankers Allied on February 8, 1967, and on the same day Bankers Allied was dissolved by the Insurance Department. On or about February 23rd, the cashier's check was presented by the Insurance Department through regular banking channels to the Bank, but was returned for a guarantee of endorsement. On February 24th, the Insurance Department discovered that the IBM stock which had been added to Bankers & Telephone's capital was stolen. On February 27th, this information was communicated to the Bank, and Bankers & Telephone was suspended by the Insurance Department. The Bank immediately called its loan and, apparently upon instructions of Street and Greenfield, stopped payment on the cashier's check.

At this point there was a series of letters from Leo Greenfield of Street and Greenfield, written in behalf of the Bank and directed to Bruce Cooper and the Insurance Department, offering to return the pledged Bankers & Telephone stock in exchange for the cashier's check pursuant to the Bank's version of Cooper's escrow agreement, which the District Court found to be erroneous. The Insurance Department refused to return the check and insisted upon its payment.

The Bank contends that the consideration given for the cashier's check was the Bankers & Telephone stock along with the IBM stock, so that when the stolen nature of the IBM stock was discovered, there was a failure of consideration for the cashier's check. In making this contention, the Bank seeks to place itself in the shoes of its Borrowers. Moreover, it seriously misapprehends both its right under the various contracts arising out of the overall purchase-rehabilitation scheme and the true nature of a cashier's check.

The simple answer to the Bank's contention is that the consideration for the cashier's check was the payment of $150,000 by a check drawn on the Borrowers' escrow account by Street and Greenfield, their escrow agents, and the resulting transfer of that amount to the Bank's cashier check account, with which the cashier's check was purchased, and not the Bankers & Telephone stock together with the IBM stock as contended by the Bank. See Wright v. Trust Company of Georgia, 108 Ga.App. 783, 134 S.E.2d 457 (1963); Tarrant Wholesale Drug Co., v. Kendall, Tex.Civ.App.1949, 223 S.W.2d 964, 966-967; Mine & Smelter Supply Co. v. Stock Growers' Bank, 8 Cir., 1912, 200 F. 245.

A cashier's check is defined as a bill of exchange drawn by a bank upon itself and accepted in advance by the act of its issuance and not subject to countermand by either its purchaser or the issuing bank. Ross v. Peck Iron & Metal Company, 4 Cir., 1959, 264 F.2d 262, 269; Polotsky v. Artisans Savings Bank, 7 W.W.Harr. 151, 37 Del. 151, 188 A. 63, 107 A.L.R. 1458, 1460 (1936); Causey v. Eiland, 175 Ark. 929, 1 S.W.2d 1008, 56 A.L.R. 529, 532 (1928); Drinkall v. Movius State Bank, 11 N.D. 10, 88 N.W. 724 (1901). See Riverside Bank v. Maxa, Fla.1950, 45 So.2d 678; Bank of Bay Biscayne v. Ball, 99 Fla. 745, 128 So. 491 (1930). As such, the Bank's liability on the check is governed by the Uniform Commercial Code, which was adopted in Florida in 1965, effective January 1, 1967. See Florida Statutes, Chs. 671-680. Under the Code, the Bank's issuance of the check, which by definition is also acceptance, constituted an engagement by the Bank to honor the check as presented, (see U.C.C. § 3-410, Florida Statute § 673.3-410) extinguishing the right of the Bank or anyone else to countermand the check. See U.S.C. § § 4-403, Florida Statute § 674.4-403, and Comment thereto, A.L.I., Uniform Commercial Code, 1962 Official Text. Assuming arguendo that Bankers Allied was not a holder in due course,¹ the Bank is entitled to defend on the ground of lack or failure of consideration. See ...