Opinion
April 8, 1960 —
May 3, 1960.
APPEAL from a judgment of the circuit court for Milwaukee county: FRANCIS X. SWIETLIK, Circuit Judge. Reversed.
For the appellant there were briefs by Glassner, Clancy Glassner and Arnold, Philipp Murray, all of Milwaukee, and oral argument by William E. Glassner, Jr., and Suel O. Arnold.
For the respondent there was a brief by Kohner Howard and Goldenberg McKay, attorneys, and Samuel Goldenberg of counsel, all of Milwaukee, and oral argument by Samuel Goldenberg and J. Curtis McKay.
On August 30, 1957, Home Savings Bank brought action against General Finance Corporation seeking recovery of $7,200. The complaint set forth four causes of action, only two of which are now relied upon.
In the first cause of action, it was alleged in brief that General Finance promised to honor a $7,200 sight draft which had been deposited with the bank, and forwarded for collection, if the bank would certify a $9,700 check drawn in favor of General Finance upon the same account; that the bank acted upon such promise, but that General Finance refused to honor the draft. The gist of the fourth cause of action was that by reason of the bank's certification and later payment of the $9,700 check to General Finance, and General Finance's failure to honor the $7,200 sight draft, General Finance will be unjustly enriched.
Schenk's Motor Sales, Inc., was a depositor with the bank. From time to time it purchased repossessed automobiles from General Finance, and General Finance from time to time financed used cars for Schenk's on a trust-receipt basis. On June 28, 1957, General Finance sold eight automobiles to Schenk's for $9,700, and Schenk's issued its check drawn on the bank for $9,700 payable to General Finance. On July 2d, General Finance deposited this check in the First Wisconsin National Bank. That evening, Schenk's deposited a sight draft on General Finance in the bank's night depository. It was an envelope draft containing a promissory note for $7,200 signed by Schenk's and payable on demand to General Finance, and a trust receipt securing the note signed by Schenk's as trustee pledging five of the eight cars purchased June 28th to General Finance as the "entruster." Because of the absence from the city of Mr. Schenkenberger, the president of Schenk's, and because of a rule of the bank requiring opening of the deposit in the presence of the depositor, this deposit remained unopened for several days.
On July 3d, the bank refused payment of the $9,700 check because of insufficient funds. Schenk's had $3,080.56 in its account exclusive of the $7,200 draft. On July 5th, General Finance received the dishonored check, and also discovered that Schenk's had become indebted to it for an additional $7,950 by reason of sales of financed automobiles for which it had not accounted. Schenkenberger explained to General Finance that the $7,200 draft had been deposited, and had the bank open the deposit. On July 8th, General Finance obtained a check from Schenk's for the $7,950, and sent a messenger to the bank to have both checks certified. At the bank, the messenger was referred to the president, Mr. Kruyne. Mr. Kruyne had a telephone conversation with the branch manager of General Finance, Mr. Finnegan, and after the conversation Mr. Kruyne had the $9,700 check certified. There was a dispute as to the conversation between Kruyne and Finnegan but the court found that in this conversation, Mr. Finnegan orally promised that the $7,200 draft deposited by Schenk's would be paid by General Finance. General Finance deposited the certified check in the First Wisconsin National Bank. On the morning of July 9th, a messenger from the First Wisconsin National Bank took the certified check to the Home Savings Bank and received $9,700 in cash. General Finance refused to honor the $7,200 sight draft. On the following day, General Finance took the five automobiles listed in the trust receipt, and later sold them for $5,900. Schenk's Motor Sales, Inc., went into receivership.
After trial, in addition to finding facts as previously stated, the circuit court found that Mr. Kruyne knew that Schenk's financial status was precarious, and that the check had once been returned because of insufficient funds; that he knew, or should have known that the acceptance of a draft must be in writing to be enforceable; that General Finance was not estopped from raising the defense of the nonenforceability of its oral promise to honor the sight draft; and that the record does not sustain the allegation that the defendant was unjustly enriched.
On August 7, 1959, judgment was entered dismissing plaintiff's complaint, and plaintiff bank has appealed.
Plaintiff bank points out that it is not attempting to recover from General Finance upon an accepted bill of exchange. ". . . The acceptance must be in writing and signed by the drawee. . . ." Sec. 118.07, Stats. Plaintiff bank does claim, however, that General Finance orally promised to accept the draft if the bank would certify the $9,700 check payable to General Finance; that the bank did so, and thereby accepted the offer and furnished consideration for the promise; that no statute requires such contract to be in writing to be enforceable. Secondly, plaintiff bank claims a cause of action for restitution of unjust enrichment. Another theory supported in some of the decisions was also considered by the circuit court, but rejected. This theory is that the promisor, General Finance, was estopped from raising the defense that its acceptance must be written.
1. Separate-contract theory. "If an acceptance or promise to accept is unenforceable under the statute because it is not in writing, it is well settled that the drawee is liable neither on the bill nor on the promise, though if other consideration is given for the promise, as distinguished from the consideration supporting the bill, it should be binding as a simple contract." 4 Williston, Contracts (rev. ed.), p. 3435, sec. 1195. This theory appears to have been followed in several cases cited in Beutel's, Brannan, Negotiable Instruments Law (7th. ed.), pp. 1229-1231, sec. 132. The difficulty we have with it is that if fully and logically followed, it would erode or evade the statutory requirement that an acceptance be written. A drawee's promise to accept or pay an outstanding bill, is scarcely distinguishable from "signification by the drawee of his assent to the order of the drawer," the definition of acceptance in sec. 118.07, Stats., requiring an acceptance to be in writing. Even where an acceptance be written, if it is written on a paper other than the bill, it does not bind the acceptor except in favor of a person to whom it is shown and who, on the faith thereof, receives the bill for value. Sec. 118.09. It can be implied, we think, from these two sections that an oral acceptance does not bind the acceptor even in favor of a person to whom the oral acceptance is directly communicated, and who, on the faith thereof, receives the bill for value. If this be not implied, then any person to whom the oral assent was directly communicated by the drawee and who, in reliance thereon, parted with value could claim an enforceable oral promise on the separate-contract theory.
2. Estoppel. "On the other hand, some cases have held that the drawee's misleading conduct in addition to such oral statement or promise may estop him to deny an acceptance in writing even under the act." Williston, op. cit., p. 3436.
One decision which appears to be based upon such estoppel, although the separate-contract theory was also suggested, is First State Bank v. Stockmen's State Bank (1920), 42 S.D. 585, 176 N.W. 646. In that case, a representative of defendant bank was attempting to collect a draft from one Halver so that it could transmit the proceeds to the drawer. Defendant's representative met Halver in another town at the office of plaintiff bank. Halver drew a check on defendant for the amount of the draft, and defendant's representative gave this check to plaintiff and asked plaintiff to issue its own draft in return. Under the circumstances, defendant could save time by obtaining a draft from plaintiff and transmitting it as the proceeds of the draft on Halver which it was collecting. When Halver's check was presented to defendant bank, payment was refused because of insufficient funds. Plaintiff was granted recovery, and the court said ( 42 S.D. 591, 176 N.W. 648): "Having led plaintiff to believe that the check was good, and that it would be honored when presented, and having induced the issuance of the draft on the strength of such belief, defendant will not, after the bank draft has been paid, be heard to say that the check was not good and would not be honored."
In the instant case, the circuit court considered the theory of estoppel although not expressly pleaded, and although plaintiff disclaims any attempt to recover upon the sight draft as if it had been accepted. The circuit court rejected this theory because of Mr. Kruyne's familiarity with banking, his knowledge of the law's requirement that an acceptance be in writing, his knowledge of Schenk's precarious financial condition. The court determined that under the circumstances plaintiff bank did not show sufficient diligence to be entitled to invoke the equitable doctrine of estoppel. We are of the opinion, however, that the theory of plaintiff's fourth cause of action, restitution of unjust enrichment, produces a result entirely equitable to plaintiff and deem it unnecessary to determine under what, if any, circumstances, a drawee would be estopped from relying upon the statutory requirement that an acceptance be in writing, or to review the reasons given by the circuit court for not applying the theory of estoppel here.
3. Unjust enrichment. The essential elements of quasi contract are a benefit conferred upon the defendant by the plaintiff, appreciation by the defendant of such benefit, and acceptance and retention by the defendant of such benefit under circumstances such that it would be inequitable to retain the benefit without payment of the value thereof. Kelley Lumber Co. v. Woelfel (1957), 1 Wis.2d 390, 391, 83 N.W.2d 872. The conferring of the benefit and appreciation by defendant are clear.
It also seems clear that at least as to a part of the money, retention by General Finance is inequitable. It is beyond belief that General Finance could have obtained cash for the $9,700 check in any way except by persuading the bank president that the draft would be honored. No matter how gullible or careless it may have been for the president to rely upon an oral acceptance, the retention of the bank's money after refusal to honor the draft as promised cannot be considered equitable.
$3,080.56 was the balance in Schenk's account when the check was certified. The record does not disclose the payment of any checks by the bank after that except the one for $9,700. We think the amount which General Finance cannot equitably retain is the difference between $9,700 and $3,080.56, or $6,619.44.
In a somewhat-similar case, the supreme court of Utah permitted a bank to recover from a finance company although the principle of unjust enrichment was not mentioned by that name. Farmers Merchants Bank v. Universal C.I.T. Credit Corp. (1957), 6 Utah 2d 413, 315 P.2d 653. There, defendant finance company presented to plaintiff bank 10 checks drawn on the bank by an automobile dealer. Plaintiff paid the checks. There were not sufficient funds to the credit of the automobile dealer unless certain drafts drawn by the dealer on the defendant already deposited in the bank, and which an officer of defendant had orally promised to honor, were paid. The court approved findings that defendant was aware of this, but that the bank, because of its reliance upon the oral promises, did not know that there were no funds available with which to pay the checks. Later the defendant refused to honor the drafts. The court stated that it applied the following principle (p. 416)
"`If the payee of a check has knowledge that there are no funds on deposit to meet it, and the bank pays the check in ignorance of that fact, there may be a recovery of the payment. Peterson v. Union Nat. Bank, 52 Pa. 206, 91 Am. Dec. 146.'"
In granting recovery, the court said that the balance in the dealer's account of the "good credit received from other sources" should be offset against the total amount of the 10 checks.
It has been suggested that since an acceptance of a bill must be in writing in order to be enforceable, it is against public policy to grant restitution in the situation here present. This question is considered in Restatement, 2 Contracts sec. 355. In comment a of sub. (1), p. 615, it is said:
"The parties to a contract that is rendered unenforceable by the statute of frauds or some similar statute very frequently act in reliance on it by rendering the agreed performance, in part or in whole, or by making improvements on land that is the subject matter of the contract. In such cases, the refusal of all judicial remedy would result in harm to one party and unjust enrichment of the other. Therefore, restitution is enforced even though the statute makes other remedies unavailable."
An exception is stated as follows:
"(3) The remedy of restitution is not available if the statute that makes the contract unenforceable so provides, or if the purpose of the statute would be nullified by granting such a remedy.
In a recent case, we said:
"Under the theory of unjust enrichment it is immaterial whether the defendant and the plaintiff entered into a void contract. The plaintiff is not seeking to have the defendant perform the alleged contract. It is seeking the return of its money. Money paid under an oral contract void because of the statute of frauds may be recovered on the theory that it was paid without consideration because the law implies a promise of repayment when no rule of public policy or good morals has been violated." Arjay Investment Co. v. Kohlmetz (1960), 9 Wis.2d 535, 538, 101 N.W.2d 700.
An illustration of the exception above referred to is found in Hale v. Kreisel (1927), 194 Wis. 271, 215 N.W. 227, where it was held that a real-estate broker could not recover for his services upon quantum meruit where he did not have a contract in the form required by statute. See also Garvey v. Wenzel (1956), 272 Wis. 606, 76 N.W.2d 291. The statute requiring a real-estate broker's commission contract to be in writing is intended to protect against unfair dealing, as well as to promote greater certainty of proof of contracts. The purpose of requiring an acceptance to be in writing seems to us to fall within the latter class, and not to prevent the remedy of restitution where one party has paid money to another in reliance upon an oral and therefore unenforceable contract.
Reference has been made in the pleadings, evidence, and briefs to the fact that General Finance, after dishonoring the draft, took possession of the automobiles, title to which was offered as security for the draft. General Finance realized $5,900 when these automobiles were sold. The record does not suggest what right General Finance had, or claimed to have, to the possession of the cars, or their proceeds, after dishonoring the draft. The bank did not, however, attempt to spell out any theory under which it acquired an interest in these cars, or their proceeds, although prior to litigation the bank demanded that General Finance return the cars if it did not pay the sight draft.
By the Court. — Judgment reversed; cause remanded with instructions to enter judgment for plaintiff in the amount of $6,619.44, with interest and costs.