Stern v. McDonald

The superintendent of banks of California, on behalf of the Kern Valley Bank, an insolvent corporation, obtained a judgment against the above-named defendants, severally, in amounts aggregating eighty-five thousand dollars, from which all of said defendants appeal except the defendant Sarah L. Conner, the executrix of the last will of C. L. Conner, deceased. The action is based upon a promissory note, dated October 15, 1909, drawn in favor of said Kern Valley Bank for the aggregate sum of one hundred and five thousand . dollars, payable in the amounts and in the manner following: Ronald McDonald, forty thousand dollars; C. L. Conner, twenty thousand dollars; P. L. Jewett, ten thousand dollars; S. Wright Jewett, ten thousand dollars; L. P. St. Clair, twenty thousand dollars; George W. Price, five thousand dollars. All of the payors named therein signed the note except L. P. St. Clair. The plaintiff alleges that the payment of said note was secured by. a pledge of ninety-five bonds, of the par value of one thousand dollars each, of the Sunset Road Oil Company, a corporation, and prays judgment against the payors, severally, for the amounts for which they respectively obligated themselves on the note, and that “said bonds be sold according to the usual course and practice of this court, and that the proceeds thereof be applied to the payment of said promissory note.”

C. L. Conner died prior to the commencement of the suit, and his executrix was made a party defendant. She filed no answer. The other defendants joined in an answer, in which they urged the defenses of no consideration, fraud and estoppel. The court found against the defendants on those issues, and further found that said note was given in payment of the purchase price of the bonds which had been pledged as security for the payment of the note, and which the court found had been previously sold to the defendants by the bank. The judgment made no disposition of the pledged bonds. At the time of the execution of the note allot the payors were directors and principal stockholders of said Kern Valley Bank, and Conner and McDonald were, respectively, its president and cashier, and S. Wright Jewett and George W. Price were its assistant cashiers. On May 12, 1911, the bank became insolvent and W. R. Williams,

The record discloses abundant evidence • to support the findings and judgment. It shows that immediately prior to October 15, 1909, said Sunset Road Oil Company bonds, of which the bank owned a large number, had depreciated in value to the extent that the bank’s capital had become impaired; that Alden Anderson, .then superintendent of banks, demanded that defendants, who, as above stated, were the directors and principal stockholders of the bank, pay one hundred and five thousand dollars into the bank, in cash or its equivalent, and directed that this should be done by means of a sale from the bank to the defendants of ninety-five bonds of said Sunset Road Oil Company, at par and accrued interest, and stated that the joint and several promissory note of defendants, properly secured by the bonds so purchased, would be accepted in payment of said bonds. Anderson informed defendants that unless this arrangement was carried out he could not allow the bank to continue business. The transaction was consummated in accordance with Anderson’s directions, except that a several note was executed and delivered to the bank instead of a joint and several note, and that St. Clair did not sign the note, thereby reducing the aggregate amount of the note from one hundred and five thousand dollars to eighty-five thousand dollars. Subsequently one J. W. Harper, a bank examiner, acting under the direction of Anderson, visited the bank and verified the fact that the note had been executed and the bonds pledged. Harper at that time was informed that St. Clair had not signed the note because he was out of town, but that he would do so upon his return. Across the bottom of the note was indorsed, in the handwriting of the defendant McDonald, “Secured by ninety-five bonds of one thousand dollars, being bonds No. 645 to 740, inclusive, of the Sunset Road Oil Co.” These bonds were afterward listed by the defendants, as officers of the bank, in the bank’s reports as pledged bonds, and the interest on the note was paid monthly by defendants up to and until one month before the bank closed, in May, 1911.

[1] The evidence above narrated clearly shows, a legal sale of said bonds from the bank to the defendants, and

[2] The defense of fraud urged by defendants is based upon certain representations claimed to have been made by Anderson to the- defendants at the time of the execution of the note, to the effect that one W. S. Tevis would also purchase a like number of bonds, and in payment thereof would execute a similar note, but that he had failed to do so, and that defendants were unaware that he had not done so until after the bank had been closed in May, 1911. This defense is insufficiently pleaded, for the reason that there are no allegations made by defendants that they relied upon said representations or that they believed them to be true. [3] However that may be, a consideration of this defense seems quite unnecessary, for the reason that both Anderson and Harper denied that any such representations were made, and the court found that their testimony was true. Any evidence to the contrary would raise a mere conflict and would not justify an interference with the findings of the trial court.

[4] The defense of estoppel is based upon an alleged rescission or repudiation of the sale of the bonds by superintendent Williams. In this respect it is alleged and was

[5] Appellants’ contention that said note was invalid because it was not a joint and several note, as Anderson had directed it should be, is also without merit. Appellants knew of the purpose for which the note was given, and as officials of the bank they were presumably familiar with the form of the note signed by them. They afterward recognized the validity of the note by listing it among the bank’s assets and by paying interest on it monthly for a year and a half. Furthermore, it is not apparent wherein appellants have been prejudiced by the execution of a several note. If it had been a joint and several note the individual defendants under the law could have been called upon to pay the full amount of the note. If anybody has suffered by the oversight it is the bank’s creditors and not the appellants.

[6] Appellants also claim that the sale of the bonds was not valid, because it was not authorized by a resolution of the board of directors, but that it was made merely upon an order issued by the superintendent of banks, in whom, it is claimed, the power to authorize such sale was not vested. The answer to that is that it does not appear from the rec

[7] Appellants’ final point is that the judgment is erroneous because it merely provides for the recovery of the note without reference to the security. It is contended that the judgment should direct that the security be sold and the proceeds applied to the payment of the note. The authorities, however, do not support appellants’ contention. It has been repeatedly held that in the absence of statute or stipulation to the contrary, the possession of pledged property does not suspend the right of the pledgee to proceed personally against the payor for his debt without selling the pledge, for the reason that the security is only collateral. (Jones v. Evans, 6 Cal. App. 88 , [ 91 Pac. 532 ], wherein the authorities are reviewed.)

Judgment affirmed.

Waste, P. J., and Richards, J., concurred.

A petition for a rehearing of this cause was denied by the district court of appeal on May 12, 1920, and a petition to have the cause heard in the supreme court, after judgment in the district court of appeal, was denied by the supreme court on June 10, 1920.

All the Justices concurred.