Opinion
Rehearing Denied Aug. 1, 1931.
Hearing Granted by Supreme Court Sept. 1, 1931.
Appeal from Superior Court, Yolo County; W. A. Anderson, Judge.
Action by the Pacific Finance Corporation against the Bank of Yolo. Judgment for defendant, and plaintiff appeals.
Affirmed.
COUNSEL
G. J. Irwin, of San Francisco, for appellant.
Gaddis & McDonald, of Woodland, for respondent.
OPINION
PLUMMER, J.
The plaintiff sued to recover on account of alleged misappropriation of moneys by the defendant in cashing two certain drafts hereinafter mentioned. From this judgment, the plaintiff appeals.
The record shows that the plaintiff in this action is in the business of financing automobile dealers in the purchase of automobiles, or in taking title to automobiles from vendors when purchased by dealers, paying the vendors therefor, and then entering into conditional sales contracts with the dealers for the resale of said automobiles to the general public.
In the case at bar, an automobile dealer by the name of Hendley was doing business in the town of Woodland. When shipments of cars would arrive in Woodland from the factory consigned to the order of the manufacturer or shipper, a negotiable bill of lading with a sight draft attached for the amount due the consignor would be forwarded to a bank at Woodland, with instructions to deliver the bill of lading against payment of the sight draft. Upon being notified that the shipment had arrived, and that the sight draft and bill of lading were in bank, Hendley would come to Sacramento and give this information to those in charge of the plaintiff’s office in the city of Sacramento, and request that it "floor" the shipment for him (flooring the shipment meaning that the Finance Company would pay the sight draft attached to the bill of lading, take up the bill and secure delivery of the automobiles from the carrier and place them on the floor of Hendley’s salesroom in the city of Woodland, a conditional contract of purchase and sale covering the shipment of cars being entered into by the plaintiff through its agent at Sacramento and Hendley). Up until the two transactions involved herein, this business had been conducted through the Bank of Woodland. On or about the 2d day of February, 1928, Hendley came to the plaintiff’s office in the city of Sacramento and informed the plaintiff that a sight draft and bill of lading for automobiles, purchased by him from the Chevrolet Company in Oakland had been forwarded to the Bank of Yolo in the city of Woodland, and thereupon the plaintiff executed and delivered to Hendley the following draft:
"Pacific Finance Corporation" No. 11102
"Sacramento, Cal. February 2, 1928.
"Pay to the Order of Bank of Yolo $4610.00 Four Thousand Six Hundred ten Dollars In payment of sight draft Automobiles Purchased for account of J. T. Hendley To Pacific Finance Corporation, Pacific Finance Building, Los Angeles, California, Harry G. McClory, For Pacific Finance Corporation."
Hendley took this draft to the Bank of Yolo, or rather, after returning of Woodland, sent the draft, together with a deposit slip, to the Bank of Yolo, which honored the draft and passed the sum mentioned therein to the credit of Hendley. Hendley thereafter, by means of checking against his account, drew out of the bank of Yolo all of the sum of money thus placed to his credit, and did not pay the Chevrolet Company of Oakland for the shipment of cars. Thereafter, and on or about the 5th day of March, 1928, Hendley appeared in the city of Sacramento at the office of the plaintiff and stated that a certain other sight draft and bill of lading for cars shipped to Woodland for the Chevrolet Company, on account of his orders, was in the Bank of Yolo, whereupon the plaintiff executed and delivered to the defendant a certain other draft in the words and figures following, to wit:
"Pacific Finance Corporation"No. 11111
"Sacramento, Calif., March 5, 1928
"Pay to The order of Bank of Yolo $2323.51 Two Thousand three hundred twenty-three & 51/100 Dollars In payment of Sight Draft Automobiles Purchased for Account of J. T. Hendley To Pacific Finance Corporation, Pacific Finance Building, Los Angeles, California, Harry G. McClory, For Pacific Finance Corporation."
Hendley either took or sent this draft to the bank at Woodland, whereupon it was honored and the amount thereof placed to the credit of Hendley. Hendley afterwards checked out all the money represented by this draft. At the time of the honoring of this draft by the Bank of Yolo, the Bank of Yolo had in its possession a draft and bill of lading from the vendors of the automobiles purchased by Hendley. This draft was not paid. The record shows that no bill of lading with sight draft attached, representing the first item herein mentioned, for which the draft of February 2, 1928, was intended as payment, ever came into the hands of the Bank of Yolo. The sight draft and bill of lading giving rise to the draft of March 5, 1928, which we have set forth, were returned to the vendors of the automobiles.
Upon the part of the appellant, it is contended that the Bank of Yolo was under obligation to apply the money, represented by the plaintiff’s draft, in payment of the sight draft forwarded by the Chevrolet Company, and, not having such draft in its possession, either to ascertain the whereabouts of the same or place the money to the credit of the plaintiff as a depositor. That in the second case it was the duty of the bank to pay the sight draft drawn by the vendors of the automobiles, and deliver the canceled draft, together with the bill of lading, to Hendley, to be forwarded by him to the plaintiff at its office in Sacramento.
The record shows that on several former occasions when automobiles had been purchased, a representative of the plaintiff by the name of McClory always accompanied Hendley to Woodland, personally delivered the plaintiff’s draft in payment of the draft drawn by the vendors of automobiles, taking up the canceled draft and the bill of lading. This had only been done when the sight draft and bill of lading of the vendors were forwarded through the bank of Woodland.
The respondent’s theory of this case, and the one adopted by the court, is that the relationship established between the plaintiff and Hendley was that of debtor and creditor; that while the transactions were carried out in such form as to place the title of the automobiles in the Pacific Finance Corporation, that the money represented by the drafts was simply so much money paid for the uses and purposes of Hendley, at Hendley’s instance and request, thus constituting a loan and creating the relationship of debtor and creditor, and that, when the drafts were placed in the possession of Hendley, he had a property interest therein, in that it was delivered to him to be applied for his uses and purposes in the purchase or in payment, rather, of automobiles ordered by him from the manufacturers.
On the part of the appellant, it is contended that it is simply buying automobile paper, is not loaning money, and that the relationship of debtor and creditor does not exist. It is further contended that, when Hendley went to the Bank of Yolo in Woodland, he was simply acting as the agent of the plaintiff without any property interest in the drafts, and that the bank had no authority whatever to give him credit for the moneys represented by the drafts. While the conditional contracts of sale entered into between the plaintiff and Hendley provided for the retention of title by the plaintiff, the whole purpose and intendment of the transaction, as disclosed by the record, was to the effect that the automobiles should be placed in the salesroom conducted by Hendley in the city of Woodland, and the automobiles thereafter sold to the general public.
Two propositions of law appear to be so well settled that we need do nothing more than cite the cases where the propositions have been involved: First. That conditional sales contracts are valid, and the title to automobiles may in this manner be retained and vested either in the vendors or those who take title from the original vendors, by taking up the bill of lading with a sight draft attached, and then executing a conditional sales contract with the dealer. Mohr v. First National Bank, 69 Cal.App. 756, 232 P. 748; Arena v. Bank of Italy, 194 Cal. 195, 228 P. 441; Bonestell v. Auto-Motive Finance Corp., 69 Cal.App. 719, 232 P. 734. Second. That whenever a finance company, having taken title from the original vendors, shippers, or manufacturers of automobiles, enters into a conditional contract of sale with a dealer, "floors" the cars for him, that is, places them in the dealer’s salesroom for sale to the public, and sales are thereafter made by such dealers to the public, the persons purchasing from the dealer obtain a valid title to the cars so purchased. General Securities Corp. v. Reo Motor Car Co., 91 Cal.App. 16, 266 P. 576; Rapp v. Fred W. Hauger Motors Co., 77 Cal.App. 417, 246 P. 1067.
What the transaction really was between the Finance Company and Hendley is best shown by the testimony of the witness McClory, the manager of the plaintiff’s branch office in Sacramento. We give it in the form of questions and answers. After stating that he had a transaction with Hendley in Sacramento on February 2, 1928, this witness testified:
"Q. Mr. McClory, will you tell us what the transaction was that you had on that date?
A. Mr. Hendley came to me and said he had a sight draft against him for some $4,610 through the bank and asked me to pay for the cars.
"Q. Through which bank?
A. The Bank of Yolo at Woodland, and asked me to pay for the cars. I gave him a draft and he signed a flooring contract and he gave me a check for what we call his portion, so we issued the draft made payable to the Bank of Yolo, with the notation, ‘Payment of sight draft.’ Also, Mr. J. T. Hendley’s name on it, and he left the office."
The witness, after stating that he had a transaction with Hendley on March 5, 1928, testified as follows:
"Q. What was that transaction, Mr. McClory?
A. Mr. Hendley came to me and said that there was a sight draft drawn against him by the Chevrolet Motor Company, through the Bank of Yolo, at Woodland, and told me that he wanted to pay for those cars and then put them on a wholesale (retail) contract to him, which was done."
The record shows that this contract was never fully filled out, but was only signed in blank by Hendley.
"Q. Mr. McClory, on account of the two sums in this, or take it, on account of the sum mentioned in the first draft of February 2d, were you repaid any of those moneys by Mr. Hendley?
A. Yes.
"Q. How much; what was the total amount that the Pacific Finance Corporation was repaid by Mr. Hendley on account of that first draft on February 2, 1928.
A. He gave us, as I recall, $610."
After refreshing his memory the witness testified that the total sum paid back was $1,315.
"Q. Now, you understood what Mr. Hendley was going to do with these automobiles?
A. Well, in the course of his business, yes.
"Q. What was he going to do with them?
A. Sell them.
"Q. Where?
A. In Woodland.
"Q. He had an agency for both the Nash and Chevrolet automobiles?
A. That’s right.
"Q. And you gave him that draft for the purpose of enabling him to floor those cars in his place of business, didn’t you?
A. That’s right.
"Q. To exhibit them to the general public, for sale?
A. That’s right.
"Q. And you knew that he was in the automobile business for the profit that he would make? He bought them at a certain figure from the Chevrolet people and from the Nash distributors, at what they call the wholesale price, and then he sold them to the general public at retail prices; is that correct?
A. That’s correct.
"Q. And you knew and understood that that was the nature of his business?
A. Yes.
"Q. And out of the profit that he made on the cars, or the purchase price that he received for the cars, he had to pay you what you advanced to him plus a certain rate of interest which you charged him. What was the rate of interest which you charged Mr. Hendley?
A. One per cent a month.
"Q. You charged him one per cent a month; then you advanced this money to Hendley for the purpose of enabling him to floor these cars in his place of business, in Woodland?
A. Yes."
Mr. McClory further testified that the plaintiff did not lend money; that it is in the business of buying retail contracts; and then further testified:
"Q. The only profit that you get in a deal such as you made with Mr. Hendley in this case is the interest that you charge him, at the rate of one per cent a month?
A. Yes, sir.
"Q. That is your only profit?
A. That is all.
"Q. And Hendley comes to you, if he had an order for cars * * * he comes to your office and tells you that he has made that order, and tells you that he has got to lift that sight draft, and you ask him how much it is, and he tells you; that includes the freight plus the wholesale price of the cars from the distributors, doesn’t it?
A. He paid the freight separately.
"Q. He paid the freight separately. But he comes into you and tells you that he has ordered certain automobiles from the Chevrolet people in Oakland, the distributors, and he tells you that he has ordered certain cars from the Nash distributors in San Francisco, and you ascertain from him the wholesale price for those cars, for the shipment, don’t you?
A. That is right.
"Q. Then you asked Mr. Hendley to make a deposit with you for a portion of that purchase price. In this case you say it is $610, isn’t that correct?
A. We ask him to make that portion as a down payment after we pay for the cars.
"Q. After you pay for the cars?
A. Yes."
The witness further testified that Mr. Hendley came to him and said he had a sight draft against him for $4,610 through the bank, and asked him to pay for the cars.
"Q. Through which bank?
A. The Bank of Yolo at Woodland, and asked me to pay for the cars. I gave him a draft and he signed a floor contract and he gave me a check for what we call his portion, so we issued the draft made payable to the Bank of Yolo, with the notation ‘Payment of sight draft,’ also Mr. J. T. Hendley’s name on it, and he left the office."
The witness further testified that he did not accompany Hendley to the Bank of Yolo, in relation to either one of the transactions herein referred to, by reason of the fact that his business at said time called him elsewhere.
The testimony in relation to the second draft was in substance identical with the testimony relating to the first draft, showing that both transactions were identical in legal effect.
Irrespective of the designation or name given to these transactions by the respective witnesses, there is no escape from the conclusion that in both instances the plaintiff was advancing money for the uses and purposes of the defendant. The taking of title to the automobiles from the vendors or distributors in Oakland and San Francisco was only a method of securing the repayment of the moneys laid out or expended in the purchase of the sight drafts drawn by the vendors or distributors, and that, as the money was advanced for the uses and purposes of Hendley, the relationship of debtor and creditor immediately came into being. The drafts were drawn at the instance and request of Hendley to pay for cars that he had ordered, with the full intent and understanding of all of the parties that the cars should be placed upon the floors of his salesrooms in Woodland and disposed of at retail to the general public. The conditional contract entered into between Hendley and the plaintiff constituted only a form of security as between them, and would enable the plaintiff to take possession of all of the cars not theretofore sold to the general public by Hendley. While the legal title to the cars, by reason of taking up bills of sale and sight drafts, when such is done, vests title in the Finance Company, a general property interest, nevertheless, remains in the dealer who has ordered the cars, and who has been allowed to take possession thereof for the purpose of making sales. In the case at bar, it appears that Hendley paid at least a portion of the purchase price, and also paid the freight on the shipments separately.
While not within the meaning of the word "loan," as used by the layman, when Hendley asked the plaintiff to pay for the shipment, and the plaintiff delivered to Hendley its draft in payment thereof, it was, in legal effect, the advancement of money for the uses and purposes of Hendley, and upon his implied promise to repay the same, and the method of doing so was by means of a conditional contract of sale and purchase of the automobiles entered into between the parties, which is none other than a loan of money carried out in the manner calculated to secure repayment to the one advancing the money. The fact that no money actually passed from the Finance Company to Hendley does not change the character of the transaction. A loan when money is passed is thus defined in 38 C. J. 126: "A contract by which one delivers a sum of money to another, and the latter agrees to return at a future time a sum equivalent to that which he borrows; the delivery by one party and the receipt by the other party of a given sum of money, upon an agreement, express or implied, to repay the sum loaned, with or without interest. If such is the intent of the parties the transaction will be considered a loan without regard to its form." The testimony shows conclusively that it was the intent of the parties that the original sum of money advanced should be repaid, with interest at the rate of 1 per cent. per month; that the parties did not intend, and never intended, that possession of the automobiles should be taken by the Finance Company and retained or dealt with as their property, but that title thereto should only be vested in the Finance Company for the purpose of insuring repayment, with interest, of the money advanced. Money advanced is essentially a loan. Puget Sound Telephone Co. v. Telechronometer Co. of America, 130 Wash. 468, 227 P. 867; Savings Bank of San Diego v. Barrett, 126 Cal. 413, 58 P. 914. See, also, In re Grand Union Co. (C. C. A.) 219 F. 353, where the transfer of piano leases were involved and the transaction very similar to the transfer of automobile paper. The full face value of the piano leases was not paid. In the present case, the testimony shows that Hendley was required to pay at least a part of the purchase price of the automobiles. In the first transaction, he was required to advance the sum of $610.
That transactions such as we are considering here are in legal effect a form of loan further appears from the case of In re American Fibre Reed Co. (D. C.) 206 F. 309.
On the part of the appellant, as we have stated, it is contended that when Hendley went to the Bank of Yolo with the drafts which we have mentioned, he was acting as the agent of the plaintiff, and that the defendant was put upon notice and should have inquired into the limited powers of Hendley as such agent, and that the transaction was not a loan, and, therefore, the claim that Hendley had no interest whatever in the moneys represented by the drafts. In this particular, our attention is first called to the case of Bowles v. Clark et al., 59 Wash. 336, 109 P. 812, 813, 31 L. R. A. (N. S.) 613. In that case, it appears that Clark, who was the appellant in the action owned certain real property in Seattle; that Fraser was the manager of a concern called the Enterprise Plumbing Company, and, as such manager, contracted with Clark to furnish certain materials. It appears that Fraser had no credit; that between $65 and $70 worth of materials additional were required to complete the work contracted to be performed by Fraser; that Clark gave a check for the sum of $70, payable to the Bowles Company, and Fraser took the check, delivered it to the respondent, and, instead of buying the necessary supplies, had his own account with the Bowles Company credited with a portion of the money represented by the check, and the supplies were obtained by Fraser from the Bowles Company on credit, and, not being paid for, the Bowles Company filed a lien on the property owned by Clark. Upon the trial, the question was presented as to whether Bowles Company should or should not have credited Clark with the whole sum instead of crediting Fraser with the amount of his indebtedness. It was held in that case that Fraser was simply the agent of Clark, had no interest in the check, and Clark should have been credited with the entire amount. Had Fraser possessed an interest in the check, we think the opinion in the case shows that the decision would have been different. We quote the following from the opinion: "Having a duty then to account for the check, the question remains: Did it so account when it appropriated it to Fraser’s use? It seems to us that it did not. It is true that Fraser was the appellants’ agent for a special purpose, and it is true also that the respondent, since it was not informed of the special limitations upon his powers, had the right to assume that his powers were such as the circumstances surrounding the transaction made them appear to be. But we think it too much to say that these circumstances were of such a nature as to warrant the belief that the property in the check was the property of Fraser. The check itself contained a distinct warning to the contrary. It was made payable to the respondent, a stranger to the drawer, and not to Fraser, and it is not reasonable to suppose that Fraser would have accepted payment of an obligation due himself in a form which he could not use without the consent and co-operation of a third person."
The court then takes up the fact that the parties all knew that Fraser had no credit, and that no one would deal with him without making further inquiries. Several cases are cited by appellant which uniformly hold that where an agent of the drawer takes a check to the bank, drawn payable to the bank, and the bank credits the agent with the amount represented by the check or draft, instead of placing the same to the account of the drawer, the bank is liable. Sims v. U.S. Trust Co., 103 N.Y. 472, 9 N.E. 605; Apostoloff v. Levy, 186 A.D. 769, 174 N.Y.S. 828; Bjorgo v. First National Bank of Emmons, 127 Minn. 105, 149 N.W. 3, L. R. A. 1915B, 287. In all of these cases, as we have stated, the question of agency was involved, and not that of ownership in and to the check or draft, or in the proceeds to be derived therefrom.
The respondent calls our attention to the case of Armstrong v. American Exchange National Bank of Chicago, 133 U.S. 433, 10 S.Ct. 450, 33 L.Ed. 747, where it was held that drafts similar to those involved in this transaction gave a property interest to the one to whom the drafts were delivered. In that case, however, the telegrams passing between the parties so distinguish it from the circumstances here involved that we do not cite it as an authority.
In the case of Bank of Venice v. Clapp, 17 Cal.App. 657, 121 P. 298, the distinction is drawn between one who has an interest in a check made payable similar in form to those involved here, and where the person presenting the check is only an agent, and it is there held that a bank in paying such a check is relieved from liability. The case of Bank of Venice v. Clapp, supra, supports in every particular the conclusion of the trial court in this action. The face of the draft involved herein shows that Hendley had a property interest therein, and that the money was being advanced by the plaintiff to pay for automobiles purchased by him.
Other questions are presented for our consideration, but they are not of such importance as to require their being set forth in this opinion.
The findings necessary to support the judgment appearing to be sufficiently sustained, the fact that findings unnecessary to support the judgment are not sufficiently sustained is immaterial.
The judgment is affirmed.
I concur: PRESTON, P. J.