Steele v. Bank of California, National Ass'n

• Citation: 9 P.2d 1053,140 Or. 107
• Parties: STEEL et al. v. BANK OF CALIFORNIA, NATIONAL ASS'N.
• Decision Date: 02 April 1932
• Court: Supreme Court of Oregon

9 P.2d 1053

140 Or. 107

STEEL et al. v. BANK OF CALIFORNIA, NATIONAL ASS'N.

Supreme Court of Oregon

April 2, 1932

Department 1.

Appeal from Circuit Court, Multnomah County; Robert Tucker, Judge.

Action by D. E. Steele and another against the Bank of California National Association. From judgment of nonsuit, plaintiffs appeal.

Affirmed.

Robert G. Smith and E. R. Harvey, both of Portland (Manning & Harvey, of Portland, on the brief), for appellants.

Thos G. Greene, of Portland, for respondent.

RAND J.

On December 2, 1926, plaintiffs deposited with the Bank of Kenton a cashier's check for $6,000 payable to their order and drawn by the Citizens' Bank of Portland, which they had indorsed, "Pay to the Bank of Kenton," and were given immediate credit upon their passbook and the books of the bank for that amount. On the afternoon of the same day the Bank of Kenton indorsed the check, "Pay to the order of the Bank of California," and deposited it with defendant, together with other items amounting in all to the sum of $69,843.96, and was at once credited with said aggregate amount upon its account with defendant. On the same day and before the close of business, defendant paid checks and drafts drawn against said account by the Bank of Kenton in excess of the amount of its deposit so that at the close of business on that day the Bank of Kenton had overdrawn its account in the sum of $3,106. At the time of these transactions the Bank of Kenton was insolvent, but it was a going concern and did not close its doors until the next morning, when it was taken over by the state superintendent of banks for the purpose of liquidation. Upon learning of its suspension, plaintiffs stopped payment of the check, and later this defendant sued the drawer and recovered judgment for the amount of the check.

Plaintiffs brought this action to recover the moneys thus collected with legal interest on the ground that the defendant, when it obtained the check, knew that the Bank of Kenton was insolvent.

Defendant is a banking corporation doing business at Portland and was one of the reserve depositories of the Bank of Kenton, where most of that bank's reserves were kept. It was the habitual practice of the Bank of Kenton to deposit daily with defendant checks, drafts, and other cash items received over its own counters and to draw checks and drafts against said account in settlement of its obligations. As to conducted, the business between the two banks averaged about $30,000,000 a year.

Upon the trial of the cause and after the close of plaintiffs' testimony, the court granted defendant's motion for nonsuit and dismissed the action.

Plaintiffs assign error in the granting of the motion and also in the court's refusal to receive in evidence a written agreement entered into by the Bank of Kenton with defendant on October 31, 1919, wherein it was agreed that, in consideration of defendant's loaning moneys to the Bank of Kenton, it should deposit with defendant collateral security. The evidence offered and received shows that the amount of such loans was $94,000 and the amount of the collateral deposited $140,000. In Bank of California v Portland Hide & Wool Co., 131 Or. 123, 282 P. 99, this particular contract was introduced in evidence, and evidence was first received and then stricken from the record, showing the amount of loans made under the contract and the amount of collateral deposited, and that after the loans had been paid by the application of the collateral a surplus of $24,837.49 remained on hand. In that case, this defendant had brought an action to recover from the drawer the amount of a draft that the drawer had deposited with the Bank of Kenton from which this defendant had purchased it. This defendant recovered judgment in the action and the striking of the testimony was assigned as error. Upon the appeal therefrom, it was held that, since the defendant in that action was a principal debtor and the deposit belonged to the Bank of Kenton, the defendant was not entitled to have the same applied in payment of the draft and, therefore, it was wholly immaterial whether any surplus remained in the hands of this defendant, the plaintiff in the action, since it would not operate in any event to discharge the drawer's liability. The rules stated by the court in that case apply to and are controlling on the question presented here. It is clear that the surplus remaining in the hands of this defendant after the payment of its claims were assets of the insolvent bank and passed to the superintendent of banks when the Bank of Kenton closed its doors, and that these plaintiffs had no interest therein or right to have the same applied in discharge of their obligations. The proof offered, therefore, was inadmissible.

Plaintiffs contend that there was evidence to go to the jury upon the question of whether this defendant was a holder in due course; therefore, that the granting of a nonsuit was error. The complaint upon which the case was tried alleged the defendant knew the Bank of Kenton was insolvent at the time it obtained the draft. There was no evidence offered which tended in any way to support that allegation. After the motion for nonsuit had been made plaintiffs were permitted, over defendant's objection, to amend their complaint so as to allege, in place of actual knowledge as first charged, that, because of certain alleged facts, the defendant took the draft in bad faith. The evidence offered by plaintiffs shows that the Bank of Kenton was insolvent but that the fact of its insolvency had been concealed by false and fraudulent entries upon its books which were not discovered by any one until several months after the bank was closed. The evidence further shows that in March, 1926, the superintendent of banks made an examination of the books and records of the Bank of Kenton and reported that the bank was solvent and that subsequent examinations made by him of the bank's affairs did not show its insolvency; that the reason therefor was the false entries which had been made upon the books and which were not discovered until several months after the bank had been closed. The evidence further shows that the Bank of Kenton, an outlying bank in the city of Portland, was doing business in the vicinity of the stockyards and that much of that business was transacted through it; that it had deposits running from $650,000 to $1,000,000 which varied from day to day because of the business transacted in the stockyards. The evidence further shows that at times the Bank of Kenton had overdrawn its account with defendant in small amounts which were always paid by deposit made on the following day; that because of these overdrafts, defendant complained to the officers of the Bank of Kenton; that they had promised that the bank would make no further overdrafts. It appears from the testimony that the reason for the bank's closing at the time it did was that the Bank of Kenton had drawn a check against its account with defendant for the sum of $57,000 and had no money in its account to pay the same and that about 4 o'clock on the afternoon of December 2, 1926, one of defendant's officers called up the...