Crum v. City of Los Angeles

Plaintiffs began this action to recover from defendants the balance due on the purchase price of certain property. The complaint gave defendants credit for a down payment of $400 and claimed that the balance of $39,837.67 was unpaid. The answer admitted the allegations of the complaint, other than the nonpayment of the purchase price, and set up full payment as an affirmative defense. The court found that the allegations of the complaint were true, except as to the amount still unpaid, gave defendants credit for a further payment of $7,823.99 and gave judgment for plaintiffs for the balance—$32,013.61.

As grounds for reversal, defendants contend (1) that the evidence does not support the finding of nonpayment, (2) that the finding that $7,823.99 was a pro tanto payment entitled defendants, as a matter of law, to a further finding that the entire amount had been paid and (3) that the court committed prejudicial error (a) in refusing to find as requested by defendants, that plaintiffs had both authorized and ratified certain acts of their alleged agent in receiving the balance of the purchase price and (b) in refusing to find that plaintiffs are estopped to dispute the authority of their alleged agent in receiving such payment.

Since the major portion of the defendants’ argument is based upon their contention that the facts are such that but one construction can be placed upon them—a construction which they claim necessitates a judgment in defendants’ favor—it will be necessary to set forth these facts in some detail.

Practically all of the transactions occurred in 1927 so we shall merely give the day and the month, adding the year

The defendant board had been engaged for some period of time in acquiring an additional water supply in Inyo County. So voluminous were these transactions that the board had stationed one of its attorneys at Bishop, in Inyo County, who devoted his time exclusively to legal matters in connection with the acquisition of such water.

Plaintiffs’ land was encumbered with a federal farm loan of something over $7,000 and unless this loan was paid off by April 2d plaintiffs believed they would have to pay another six months’ interest. A preliminary title search incident to the sale to the board showed irregularities which would apparently delay the issuance of the certificate for several months. In order to escape paying this additional interest, plaintiffs, during the latter part of March, requested the First National Bank of Bishop (hereinafter referred to as the bank) to loan plaintiffs the money to pay off this farm loan. The bank agreed to do so provided plaintiffs would retain an attorney in Bishop, whom it named, to handle the papers in connection with the deal. This, plaintiffs promptly proceeded to do. This attorney contacted the resident attorney for the defendant board and as a result of this interview plaintiffs, on March 30th, wrote the board’s attorney requesting that all matters relating to the sale of the property, together with all payments, be handled through and escrowed with the bank and at the same time plaintiffs executed a deed to the land and delivered it to the bank. On March 31st, the following occurred: The bank delivered this deed to the board’s attorney, together with a letter stating in part “This deed is

Up to this point there is no complaint from either side as to any unauthorized act of the bank.

Many similar deals between the board and parties other than plaintiffs had been cleared through this bank and the evidence showed it had been the custom of the bank, without consulting the owners of the land, to indorse the owners’ names on the warrants, send them through for collection and hold the money until the escrows were closed. There is no evidence that plaintiffs were aware of such custom. Following out this usual custom the bank, instead of obeying the board’s instructions to hold the warrant, indorsed it April first as follows: “Deposited to the credit of W. D. Crum and Elinor Adell Crum. Endorsement guaranteed First National Bank, Bishop, California” and sent it through for collection. The treasurer of .the defendant city, likewise disregarding the instructions that the warrant should be held by the bank, promptly paid it on presentation April 4th. April 8th, the Federal Farm Loan Bank, which held the mortgage on plaintiffs’ property, wrote the bank at Bishop inclosing plaintiffs’ canceled note and mortgage papers to be delivered to plaintiffs, sent a copy of its letter direct to plaintiffs, wrote the Farm Loan Association inclosing a $400 check to be refunded to the plaintiffs for the purchase price of the Farm Loan Bank stock which plaintiffs had purchased when they secured the loan, and sent a copy of this letter also to plaintiffs. Thereafter, the Farm Loan Association sent its check for the

At all times after the proceeds of the warrant had been received by the bank, the bank was in financial difficulty and its cashier testified that had plaintiffs demanded from the bank the balance of the purchase price, the bank would not have been able to pay the same. August 4th, the bank closed its doors through insolvency. Plaintiffs testified that they believed the money used to pay off their farm loan had been advanced them by the bank and that not until November—long after the failure of the bank—did they know that the Los Angeles City warrant had been cashed by the bank. Not until January 23, 1928, was the certificate of title issued showing good title in plaintiffs and it was then tendered to the board.

It is at once apparent that the vital question in the case is: Upon whom shall the loss, occasioned by the bank’s failure, fall?

Defendants contend that plaintiffs had selected the bank as their agent, that plaintiffs, knowing in April that their farm loan had been paid off, were charged with notice that the only method by which it could have been paid was the use of the purchase money represented by the city’s warrant, that the bank in cashing the warrant was acting solely as agent for plaintiffs, that plaintiffs in receiving and accepting the $400 returned them by the Farm Loan Association and by accepting the benefit of the seven thousand odd dollars paid to clear off their farm loan had, as a matter of law, thereby ratified the acts of their agent the bank in cashing the warrants. They also contend that plaintiffs, having neglected from April to August 4th to take any action regarding the unauthorized cashing of the warrant and the bank in the meantime having become insolvent and the purchase money thus lost, the plaintiffs are estopped to deny the authority of the bank to cash the warrant. Plaintiffs contend, on the contrary, that they were not entitled to receive the purchase price until they had furnished the board with a proper certificate of title, that prior to such time, even though the bank had, unknown to, plaintiff, cashed the warrant, it was holding the proceeds in its capacity as agent for the city, and that since it closed its doors five months before

If the property in the custody of the escrow-holder is either embezzled or lost by it, then, as between the seller and the buyer, the loss falls on the one who owns the property at the time of its embezzlement or loss. For example, if the escrow-holder embezzles the purchase’ price before the time when, under the terms of the escrow, the seller is entitled to it, the loss falls on the buyer since it is still his money. On the other hand, if the money be embezzled after the time when the seller has become entitled to the money, the loss falls on him since it is now considered his property (Hildebrand v. Beck and Shreeves v. Pearson, supra). If this rule be applied to the case at bar the money in the hands of the bank as escrow-holder was lost before plaintiffs became entitled thereto and hence the loss should fall on the defendants whose property it still remained. The defendants contend, however, that the facts do not bring this case within such rule. They argue that in order to create an escrow at all it is essential that the defendants should have relinquished entire control over their property, citing Fitch v. Bunch, 30 Cal. 208 , 212, 213, Cannon v. Handley, 72 Cal. 133 , 139-141 [ 13 Pac. 315 ], McDonald v. Huff, 77 Cal. 279 , 282 [ 19 Pac. 449 ], Kenney v. Parks, 125 Cal. 146 , 149, 150 [ 57 Pac. 772 ], that by its letter of transmittal the defendants specifically directed the bank to hold the warrant until it received written instructions as to its disposal, thereby retaining to themselves control thereof and hence that the principles announced in these two eases do not apply. But the cases cited by defendants were concerned primarily with whether or not the parties to the alleged escrows had so far parted with dominion over deeds to their property that upon the happening of the condition mentioned in the escrow, a delivery thereof would take place. Regardless of whether the facts in the case at bar constitute a true escrow, nevertheless the principles laid down in Hildebrand v. Beck and Shreeves v. Pearson, supra, are applicable. When defendants delivered the warrant to the bank with instructions to hold

Defendants contend with great earnestness that this court must hold the plaintiffs were chargeable with knowledge of the fact that the bank had both cashed the warrant and used part of the proceeds to pay off plaintiffs’ farm loan. They contend that plaintiffs must have known that the only way the farm loan could possibly have been paid off was from the proceeds of the warrant, and that plaintiffs with such knowledge ratified the bank’s act by accepting and retaining the benefit of the mortgage payment and the return of their $400 stock subscription. We now proceed to scrutinize the evidence to ascertain what knowledge or notice of the bank’s act was chargeable to plaintiffs. Plaintiffs were informed by the bank that it could arrange to pay off the farm loan if plaintiffs would allow a certain attorney to handle the papers. To this plaintiffs agreed. March 30th plaintiffs gave the bank a deed to the property and on the same day wrote a letter to the board’s attorney asking that the deal be cleared through the bank. The board’s reply to such letter was to mail plaintiffs a copy of the board’s letter to the bank dated March 31st which stated that the board was sending the bank the warrant and direct

The defendants submitted proposed findings to the effect that plaintiffs had authorized the cashing of the warrant, that plaintiffs had ratified the bank’s act in cashing the warrant and that plaintiffs were estopped to deny the bank’s authority so to do. Defendants contend that the court’s refusal to find on these three matters is reversible error, arguing that while neither ratification nor estoppel

Regarding the refusal to find on the question of estoppel suffice it to say that there is no evidence in the record upon which a finding of estoppel could have been predicated.

The judgment is affirmed.

Barnard, J., and Marks, J., concurred.

A petition for a rehearing of this cause was denied by the District Court of Appeal on January 12, 1931, and a petition by appellants to have the cause heard in the Supreme Court, after judgment in the District Court of Appeal, was denied by the Supreme Court on February 9, 1931.