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District Court of Appeal, Third District, California.

VANCIEL et al. v. KUMLE et al.

Civ. 7088.

Decided: December 08, 1944

Bush & Ackley, of Oakdale, for appellants. H. A. Savage, of Fresno, and T. B. Scott, of Modesto, for respondent.

The plaintiffs, as lessors of a mining claim in Stanislaus County, brought suit to recover unpaid royalties from Hubert and Donald Kumle and Leon Brier, as lessees, under the terms of a mining lease of said property. The lease was assigned to the Bank of America to secure payment of a loan of $25,000, procured by the partnership for the purpose of operating the mining enterprise. The bank was made a party defendant in the action. The suit is in the nature of an accounting. On trial of the cause, at the close of the evidence, the Bank of America was permitted to file a pleading which was entitled ‘Plea for Moneys Unlawfully Paid to Vanciel After Assignment, to Conform to Proof.’ The court adopted findings favorable to the bank. Judgment was rendered in favor of the bank against the Kumles and Brier, as members of the copartnership, in the sum of $4,731.85, which included fourteen monthly payments to the plaintiffs of royalties, aggregating the sum of $2,800, which were made without the knowledge or consent of the parent bank. From that portion of the judgment which awards to the bank said sum of $2,800, and interest, the defendants Kumles and Brier have appealed.

The plaintiffs leased their placer mining claim in Stanislaus County to Hubert and Donald Kumle and Leon Brier, copartners doing business under the name of Placer Properties Company, on September 26, 1938. The lease contained the following provision:

‘Commencing on January 1, 1939, Lessees agree to advance the sum of Two Hundred Dollars ($200.00) per month, which said sum shall be deducted from any royalties accruing hereunder as soon as said royalties accrue.’

The lessors and the lessees borrowed from the Oakdale branch of the Bank of America National Trust and Savings Association in August, 1939, the sum of $25,000 to finance the operation of the mining enterprise. That loan was made with the approval of the parent bank. T. C. Smethers was the manager of the Oakdale branch of the bank. To secure that loan the lease was assigned to the bank on January 24, 1940, including all right, title and interest in and to all rent and royalties due or to become due under the terms of the lease. On the last, mentioned date, the lessees, Hubert and Donald Kumle and Leon Brier, were given written notice of said assignment, which they acknowledged in writing. That acknowledgment contained the following language:

‘We agree to pay over to Bank of America National Trust and Savings Association at its Oakdale, California, branch office, all royalties and rents now due and payable, and which may hereafter become due and payable under the terms of said agreement to the lessors named therein, * * *.’

The trial court found that there was due to the bank, under the terms of the lease, the aggregate sum of $4,731.85, including therein fourteen monthly payments of $200 each, which were wrongfully made by the lessees to the plaintiffs between March 21, 1940, and April 11, 1941, amounting to $2,800, together with interest. The court, however, further found with respect to said fourteen payments of royalties of $200 each, that they were made ‘in good faith’ and that T. C. Smethers, the manager of the Oakdale Branch of the Bank of America, consented to the first payment to plaintiffs of $200 only, but that no objection was made by him to the remaining payments and that he therefore ‘acquiesced’ in those payments, although all of them were made without the authorization, knowledge or consent of the parent bank.

The theory upon which the trial court rendered judgment against the lessees for the amount of the payments of royalties to the plaintiffs was that Smethers, as manager of the branch bank, had no power or authority from the parent bank to consent to said payments.

The appellants contend that the judgment in favor of the bank for payments of said royalties in the aggregate sum of $2,800 is not supported by the evidence for the reason that Mr. Smethers acted as ostensible agent for the parent bank in authorizing those payments to plaintiffs, and that the court abused its discretion in permitting the bank to file an amended pleading to conform to the proof in that regard adduced at the trial.

There may be a conflict of evidence as to whether Smethers acquiesced in other than the first $200 payment of royalties to the plaintiff, after the assignment of the lease. Both Hubert and Donald Kumle testified that ‘Mr. Smethers consented to the making of advanced royalty payments to Mr. Vanciel.’ On the contrary Mr. Smethers testified, in effect, that he did consent to the first payment of $200 to the plaintiffs, but that he did not consent to any further payments and that ‘he did not know that Kumles continued paying this advance royalty of $200.00 per month to Vanciel until March 1941, when he received a letter and statement from Placer Properties Co.’ He did say that he never talked to any of the lessees about their failure to make payments of the monthly installments of royalties to the bank ‘until some time in the spring of 1941.’ In view of the foregoing conflict of evidence, we must assume, in support of the findings, that Mr. Smethers, as manager of the branch bank, did acquiesce in the payments to plaintiffs of all said monthly installments aggregating the sum of $2,800.

The important question to be determined is whether the Bank of America is estopped by its conduct from denying that the manager of its branch bank was authorized to waive the payments to the bank of said royalties.

It appears without conflict that Hubert and Donald Kumle and Leon Brier had personal written notice on the same date as the assignment of the lease that all payments of royalties were to be made to the bank. They then agreed in writing to make all such payments to the bank. Reliance upon ostensible authority is not justifiable when one has actual notice to the contrary. Actual notice of a limitation of authority of an agent negatives the assumption of ostensible authority. When ostensible authority is held to exist, it presupposes the absence of actual notice. 6A Calif.Jur. 1144, sec. 651. Section 2318 of the Civil Code provides that:

‘Every agent has actually such authority as is defined by this title, unless specially deprived thereof by his principal, and has even then such authority ostensibly, except as to persons who have actual or constructive notice of the restriction upon his authority.’ (Italics added)

Section 2319 of that Code provides in part:

‘An agent has authority:

‘1. To do everything necessary or proper and usual, in the ordinary course of business, for effecting the purpose of his agency; * * *.’

The preceding section does not authorize an agent, even though he be the manager of a bank empowered to negotiate a loan, procure the execution of documents incident thereto and collect the money due in accordance with the terms of an assigned lease, to waive payments, dispose of property belonging to the principal or materially change the terms of the contract.

In construing the language of the preceding section, it is said in California Annotations to Section 51 of Restatement of the Law of Agency at page 55 of the Pocket Supplement that:

‘In accord see Civil Code, sec. 2319(1),

“In the exercise of the power delegated, the agent could not go beyond it nor beside it, though it is competent for him to perform all such subordinate acts as are usually incident to or necessary to effectuate the object expressed.' (Citing authorities) However, ‘* * * an agent empowered to make contracts is not authorized to rescind or modify them.’ (Citing authorities)'

In support of that statement of law, the opinion in the case of State Finance Co. v. Hershel California Fruit Products Co., 8 Cal.App.2d 524, at page 527, 47 P.2d 821, at page 823, states:

‘That an agent is hired to acquire interests and not to give them up is a presumption that may be overcome if the principal had knowledge of the change in a contract and did not within a reasonable time countermand and cancel the modification. The rule is well stated in 31 Cyc. 1387: ‘Presumptively an agent is employed to make contracts, not to rescind or modify them, to acquire interests, not to give them up, and no power to cancel or vary an agreement is to be inferred from a general power to make it, nor has the agent any implied power to waive or give up rights or interests for his principal * * * unless the principal knew or approved of such modification by the agent.’' (Italics added)

With respect to the limitation of acts of an agent, incidental to his authority to make or carry out the terms of a contract, in dealing with a third party, it is said in comments on Section 51 of Restatement of the Law of Agency, at page 127:

‘Since such acts are not incidental to the making of a contract, it is not inferred that authorizing an agent to make a contract authorizes him to alter its terms; to waive its conditions or otherwise to diminish or discharge the obligations of the third person.’

And in Section 166 of the last mentioned authority it is said at page 406:

‘If a third person has notice of a limitation of an agent's authority, he cannot subject the principal to liability upon a transaction with the agent in violation of such limitation.’

We are of the opinion Mr. Smethers, the manager of the Oakdale branch of the Bank of America, was without authority to consent, contrary to the assignment of the lease and written notice thereof, to the payment of any monthly installments of royalties to the plaintiffs. Such consent of divert payments of money belonging to the bank would be ultra vires and void. An officer of a bank may not release, nullify the contract or dispose of property of a bank without consideration. Bank officers are authorized to properly manage the property of a bank, but may not waive payments due to the bank or give away its property. Colley v. Chowchilla National Bank, 200 Cal. 760, 767, 255 P. 188, 52 A.L.R. 569; Bank of America National Trust & Savings Assoc. v. Goldstein, 25 Cal.App.2d 37, 48, 76 P.2d 545; 4 Zollmann's Banks and Banking, Perm.Ed., p. 259, §§ 2233, 2234.

Mr. Smethers testified that, with the exception of the first $200 payment of royalties, he did not consent to waive the money due to the bank or authorize any payments of royalties to the plaintiffs. He said that he had no knowledge of those payments until the report of Placer Properties Company was rendered in March, 1941, in which it was stated, ‘Advances to Vanciel at $200.00 per mo Fr Mar/40 to Feb/41, Incl $2400.00.’ Smethers claimed that was the first notice to the bank that said payments, with the exception of the first one, had been wrongfully made to the plaintiffs. The doctrine of ostensible agency has no application to the facts of this case.

For most purposes branch banks are not regarded as separate and distinct institutions, but the relationship between the parent bank and its branches is that of principal and agent. 7 Am.Jur. 41, sec. 25; 50 A.L.R. 1348; note; 2 Zollmann's Banks and Banking, Perm.Ed., p. 413, § 1296. It is true, as the reviewing courts held in Rutherford v. Rideout Bank, 11 Cal.2d 479, 80 P.2d 978, 117 A.L.R. 383, Ghiglione v. American Trust Co., 49 Cal.App.2d 633, 122 P.2d 301, and other cases relied upon by the appellants, that a principal who puts an agent in a position that enables the agent, while apparently acting within his authority, to commit a fraud upon third persons is subject to liability to such third persons for the fraud. In support of that principle the opinions in the foregoing cases cite Sections 261 and 262 of Restatement of the Law of Agency. That principle has no application to the present action. The cases last mentioned were suits for fraud perpetrated by the officers of the respective banks. It is not contended in this case that the bank or any of its officers were guilty of fraud. There is no finding of fraud in the present case. Fraud was neither pleaded nor proved. The preceding citations upon that subject are therefore not in point.

The court did not abuse its discretion in granting permission to the Bank of America to amend its pleading at the close of the evidence to conform to the proof adduced at the trial. The cause was tried on the theory of an accounting to determine what amount, if any, was due and payable under the terms of the assigned lease. That evidence indicated that the lessees had wrongfully paid to plaintiffs the sum of $2,800 in royalties, without the knowledge or consent of the Bank of America. Those monthly installments of royalties were paid to plaintiffs by the lessees after written notice and full knowledge that they belonged to, and were required to be paid to the bank only, and after the lessees had agreed in writing to pay them to the bank. In effect, the pleading which is entitled ‘Plea for Moneys Unlawfully Paid to Vanciel After Assignment, to Conform to Proof’ was a cross-complaint or counter demand against the defendants Hubert and Donald Kumle and Leon Brier, for royalties due to the bank under the assigned lease, which were wrongfully paid to plaintiffs. The lessees might have likewise asked for judgment against the plaintiffs for repayment of said sums, but they did not do so, and that was not an issue in the case, as the court specifically found. Without a doubt the bank's claim for payment of said royalties under the terms of the assigned lease were directly related to and grew out of the contract and transaction which was the subject of the litigation. That claim was therefore a proper issue under Section 442 of the Code of Civil Procedure, and the court did not abuse its discretion in permitting the bank to amend its pleading, even though it amounted to a counter demand against the lessees. It does not appear that the appellants were prejudiced in any manner by that ruling of the court. The subject of the payments of those fourteen installments of royalties was fully covered by various witnesses in behalf of all parties. Apparently all the facts and circumstances surrounding those payments were fully adduced in evidence.

The trial court has a second discretion, in furtherance of justice, to permit a party to amend any pleading to conform to the proof adduced at the trial (Secs. 470 and 473, C.C.P.; 21 C.J. 209, sec. 143), if the amendment does not result in changing the scope or nature of the action. Abbott v. Limited Mut. Comp. Ins. Co., 30 Cal.App.2d 157, 85 P.2d 961; 21 Cal.Jur. 185, sec. 128; Sweet v. Hamilothoris, 84 Cal.App. 775, 258 P. 652; 1 Bancroft's Code Pl., 785, sec. 544. Certainly the amended pleading which was filed in this case did not change either the nature or the scope of the action which was tried The order permitting the amendment to conform to the proof was not an abuse of discretion.

That portion of the judgment from which the appeal was perfected is therefore affirmed.

THOMPSON, Justice.

ADAMS, P. J., and PEEK, J., concur.

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