Torrance Nat. Bank v. Enesco Federal Credit Union

• Decision Date: 11 July 1955
• Citation: 134 Cal.App.2d 316,285 P.2d 737
• Court: California Court of Appeals Court of Appeals
• Parties: TORRANCE NATIONAL BANK, a national banking association, Plaintiff and Respondent, v. ENESCO FEDERAL CREDIT UNION, a cooperative association, Defendant and Appellant. Civ. 20706.

Page 737

285 P.2d 737

134 Cal.App.2d 316

TORRANCE NATIONAL BANK, a national banking association, Plaintiff and Respondent, v. ENESCO FEDERAL CREDIT UNION, a cooperative association, Defendant and Appellant.

Civ. 20706.

District Court of Appeal, Second District, Division 1, California.

July 11, 1955.

Rehearing Denied Aug. 1, 1955.

Hearing Denied Sept. 8, 1955.

Spray, Gould & Bowers, Robert E. Ford, Los Angeles, for appellant.

Donald Armstrong, Torrance, McLaughlin & Casey, Los Angeles, for respondent

WHITE, Presiding Justice.

Defendant, Enesco Federal Credit Union, a corporation (hereinafter called Enesco), has appealed from a judgment for $12,898.51 in favor of Torrance National Bank (hereinafter called the Bank).

The Bank sought to recover $19,516.93, the amount by which Enesco's account with the Bank was allegedly overdrawn. Enesco cross-complained for $7,628, the amount of a check made to its order, endorsed 'Pay to the order of Torrance National Bank for Deposit to the account of Enesco Federal Credit Union', for which the Bank, upon its presentation by Joseph Alden, Enesco's treasurer, paid him the cash. Enesco cross-complained also for $10,483.07, the amount of its deposit which was applied by the Bank toward the payment of a certain $30,000 check to the Bank, drawn on Enesco's account, signed by said Alden, and presented by him to the Bank in exchange for $30,000 cash. The amount of the judgment is the difference between $19,516.93, with interest thereon from April 3, 1953, and $7,628, with interest thereon from March 31, 1953.

No appeal having been taken by the Bank, we will not consider or further discuss the court's decision that the Bank 'is indebted to defendant in the sum of $7,628, together with interest on said sum from March 31, 1953, at the rate of 7 percent per annum'.

Enesco is a credit union composed of some of the employees of National Supply Company (hereinafter called National), an industrial plant located in the City of Torrance. Enesco's office was in a small building on National's premises. Early in 1949, Joseph Alden became the treasurer of Enesco. The act under which Enesco was incorporated provided that 'The Treasurer shall be the general manager * * * shall have custody of all funds * * * shall sign all checks, drafts, notes, and other obligations of the credit union * * *.' Title 12 U.S.C.A. § 1761. Enesco's by-laws, Title 12 U.S.C.A. § 1758, provide that the treasurer shall be the general manager under the control and direction of the Board of Directors.

On September 26, 1950, Enesco's board of directors passed a resolution and furnished a copy thereof to the Bank authorizing Joseph Alden or his wife, as treasurer and assistant treasurer, respectively, 'to sign all checks and drafts of this corporation * * *.'

Without conflict, the evidence is that at the close of business on Thursday, April 2, 1953, Enesco had on deposit with the Bank the sum of $10,483.07; that after three o'clock that afternoon, while the Bank was closed, Alden left with the Bank's teller an unnumbered check, dated April 3, 1953, drawn on the account of Enesco for $30,000, payable to the Bank, and its teller delivered to Alden $30,000 in cash packed in his own valise; that a few minutes later, while Alden was on the way from the Bank to Enesco's office, he was robbed of the $30,000; that on April 4, 1953, the check was charged by the Bank to the account of Enesco, creating an overdraft of $19,516.93; that the $30,000 was intended by Alden to be used in his own business of cashing pay checks and charging therefor; that Alden had been expressly directed by Enesco's board of directors not to use any of the corporation's funds for cashing pay checks; that the Bank knew Alden intended to use the $30,000 for cashing pay checks, had made no inquiry as to his authority, but did not know that Alden had been directed not to use Enesco's money for that purpose; that the check had been left by Alden with the Bank's teller pursuant to his understanding with the Bank's vice president and the vice president's instructions to the teller, that the check would be held in the teller's cash drawer without entering it in the Bank's records to give Alden time to cash pay checks for National's employees, deposit them with the Bank in another account, and exchange his check on such other account for the Enesco check so held by the Bank.

The other facts will be stated in connection with the discussion of the questions to which they are pertinent.

The Bank has the right to assume that any 'check, receipt, or order of withdrawal', drawn by an agent 'in the authorized form or manner * * * was drawn for a purpose authorized by the depositor and within the scope of the authority conferred upon such person.' Financial Code, § 953.

Appellant contends that the paper involved was not drawn 'in the authorized form or manner' for three reasons: (1) It was unnumbered; (2) It was postdated; and (3) It's amount was in excess or the balance of Enesco's deposit with the Bank.

Number on checks, like notations of the purpose for which checks are drawn, are memoranda for the convenience of the maker and the absence thereof does not 'restrict the bank's right to charge the maker's account with the amount thereof'. 9 C.J.S., Banks and Banking, § 332, page 677; Boston Ins. Co. v. Wells Fargo Bank & Union Trust Co., 80 Cal.App.2d 59, 67, 181 P.2d 84.

An essential characteristic of a check is that it be payable on demand. Civil Code, § 3265a; 7 Am.Jur. 794, § 10; Minturn v. Fisher, 4 Cal. 35. However, a postdated check is within the phrase 'checks and drafts' used in the resolution on the signature card furnished the Bank by Enesco. It is also an 'order of withdrawal' authorizing the Bank to assume authority as provided in Financial Code, § 953. Therefore, under the facts and circumstances of the instant action, the postdating of the check has no significance.

An overdraft is in legal effect a loan by the bank to its depositor. 8 Cal.Jur.2d 108; Faulkner v. Bank of Italy, 69 Cal.App. 370, 231 P. 380, 383; Popp v. Exchange Bank, 189 Cal. 296, 208 P. 113.

'Where a principal authorizes an agent to collect money and draw and indorse checks, the law is that such authorization does not empower the agent to create an overdraft'. Faulkner v. Bank of Italy, supra, 69 Cal.App. 370, 376, 231 P. 380.

Respondent urges that the holding in the Faulkner case had no application to the case at bar because in the Faulkner case the written agreement on the signature card of joint tenants 'authorized either * * * to withdraw * * * the entire sum represented by the account * * *'; the agreement did not authorize 'either party to overdraw the account'; and 'there is nothing in the agreement by which either party guaranteed to pay any overdraft'.

Examining the signature card furnished the Bank by Enesco in the instant action, we find that Alden was authorized to sign 'checks and drafts'. Section 953 of the Financial Code gave the Bank the right to assume that 'any check, receipt, or order of withdrawal' signed by Alden was within the scope of his authority. 'The original and fundamental idea and purpose' of checks, drafts and orders of withdrawal is that 'the drawer has funds or effects in the hands of the drawee', and orders drawee to pay a portion or all of such debt or deposit to payee. 7 Am.Jur. 790, § 6. Ordinarily, the bank is not obligated or expected to honor any check, draft or order of withdrawal for an amount greater than the deposit against which it is drawn. The resolution of Enesco, copy of which was furnished the Bank on its signature card, as was said in the Faulkner case, supra, was 'at once an authorization and a limitation.' It contains no language authorizing Alden to borrow from the Bank for the account of Enesco, and no agreement on the part of Enesco to repay to the Bank any overdraft created by Alden's check or draft. Nor, do we find any language in section 953 of the Financial Code which gives the Bank the right to assume that Alden was authorized to overdraw Enesco's account or to borrow money for its account.

Respondent urges that the instant action is further distinguished from the Faulkner case, supra, by the fact that 'there was nothing in that case on which any ostensible agency could be predicated.'

In the instant action, the court concluded 'That Joseph Alden had ostensible authority from Enesco to withdraw the $30,000 which he withdrew on April 2, 1953.' That conclusion is based upon seven pages of detailed findings, most of which we will not repeat here. There is no finding, and no evidence in the record, to the effect that Enesco knew of or should have suspected the existence of the oral understanding between Alden and the Bank's vice president, or the custom which they had developed, pursuant to which, on the day before each of National's paydays from October, 1950, to April, 1953, Alden had left an unnumbered, postdated check of Enesco with the Bank to be held without entry in its records and picked up by Alden the next day. There is no finding, and no evidence in the record, that Enesco's bank statement had ever shown an overdraft, except the one created on April 4, 1953, by the $30,000 check involved on this appeal.

As we have hereinbefore indicated, in the absence of facts creating an estoppel as against the Bank, if Enesco had had $30,000 on deposit with the Bank on April 3, 1953, the date of the check, or on April 4, 1953, the date of the presentation of the check by the Bank as payee for payment by the Bank as drawee, the Bank was expressly authorized, under the provisions of its signature card and of section 953 of the Financial Code, to charge said check against the account of Enesco; but, Alden's actual authority did not extend to the creation of an overdraft.

'Ostensible authority is such as a principal, intentionally or by want of ordinary care, causes or allows a third person to believe the agent...