CAMERER v. CALIFORNIA SAVINGS COMMERCIAL BANK OF SAN DIEGO (1934)

Respondent instituted this action against appellants, and others, to recover possession of $45,500 par value of bonds and other securities, or their value, if possession could not be had. Other relief was sought which it is not necessary that we consider here. Judgment was rendered against Edward Rainey as Superintendent of Banks for the recovery of all of the securities in his possession of the par value of $44,500, or their market value in the sum of $39,385, in case redelivery could not be made. The case was ordered dismissed against the California Savings & Commercial Bank of San Diego, which we will hereafter refer to as the bank.

I. I. Irwin was a banker with an experience of more than eighteen years in the city of San Diego. Respondent was a medical officer in the United States Navy, a friend and acquaintance of Irwin's, and a depositor in the financial institutions with which he was connected.

Irwin organized the California Savings & Commercial Bank of San Diego and became its president. He owned four thousand one hundred twelve out of the total issue of five thousand shares. He dictated the policies of the bank, except during the last few months of its existence as a going concern. About the time of its organization he induced respondent to transfer his account to the bank and to purchase fifty shares of its capital stock.

The California Safe Deposit Company of San Deigo conducted a safe deposit business in the basement under the bank. While it had a separate corporate entity, it was a subsidiary of the bank and was controlled by it. On November 5, 1927, respondent rented a safe-deposit box from it in which he kept his valuable papers. According to the signature card and rental agreement, C. B. Camerer, Mrs. C. B. Camerer, his wife, and I. I. Irwin were authorized to open the box. Respondent was frequently away from San Diego for considerable periods of time on duty with his ship, at sea, or at hospitals in other localities. During such times Irwin opened the safe-deposit box, clipped and collected the coupons and performed other services for respondent, with his knowledge and consent.

The bank continuously lost money from the time it opened until it was closed. Either quarterly, or semiannually, Irwin placed in the profit and loss account of the bank sufficient money to cover the loss during the period succeeding his prior payment so that no loss would appear on the books.

Irwin started using respondent's bonds in the fall of 1927, and continued using them in 1928 and 1929, when the bank needed money to make up its deficit. In all but one of these transactions he described his actions as follows:

“A. Well, as far as my memory serves me, at each quarter the bank needed money to pay the deficit, and when that occurred I took these bonds and sold them to the bank and deposited this money to my account and gave the bank a check to pay on the profit-and-loss account. Later on, when I had money in my account, I took the bonds back, and later on I put them back again. That is my recollection of it.

“Q. Did some of the other officers of the bank know the nature of these transactions? A. I suppose so. * * * Those bonds were turned over to the official who had charge of the bonds, and he made out the statement and credited the amount to my account and charged the bonds to the bank's bond account. That's my recollection.

“Q. During this period that you were speaking of, the bank was not making any profits, but, on the contrary, was losing money? A. Yes.

“Q. And needed the money at the end of each quarter to pay its running expenses? A. Yes.

“Q. And these bonds were simply manipulated in that way so that the bank would have money? A. Yes. * * *

“Q. Into which of the bank's accounts was that put? A. It was charged to my account and credited, as far as I know, to the profit-and-loss account of the bank.

“Q. Was the same thing done in regard to money ostensibly raised by the other negotiations with these bonds that you say were similarly sold to the bank? A. As far as I remember.

“Q. All went into the profit-and-loss account of the bank and it was needed for the running expense of the bank? A. Yes, sir.”

Respondent at no time prior to the closing of the bank in July, 1930, had any knowledge that Irwin had sold any of his bonds or securities or used them as a pledge to secure payment of a promissory note to the bank, and prior to November 21, 1929, did not know that Irwin had removed any of the securities from the safe-deposit box.

The “sales” of respondent's securities to the bank were made by Irwin upon his express understanding with the other bank officials that they were to be kept separate from other securities owned by the bank; that the bank would not sell them; that Irwin would repurchase them when he could; that the coupons would be clipped and delivered to Mr. Irwin. Irwin repurchased all of the securities “sold” to the bank prior to September, 1929, and returned them to the Camerer safe-deposit box.

In the latter part of September, 1929, Irwin needed over $20,000 to make good the losses of the bank. He removed securities of the par value of $22,500 from the safe-deposit box of respondent and “sold” them to the bank, at their market value, with the instructions we have outlined. These were never repurchased by Irwin, but, with the exception of one $1,000 bond which matured and was delivered to Irwin, remained in possession of the bank and were taken over by the Superintendent of Banks when he closed the bank.

In the latter part of November, 1929, respondent made an unexpected and hurried return to San Diego. Irwin contacted him and explained that he wanted to rent the use of some of the securities. He explained to Camerer that the bank had ways of making profit from the securities in addition to their regular interest. Camerer consented and gave Irwin the securities he desired which were the same ones which Irwin had “sold” to the bank in September, 1929. They were all in Camerer's safe-deposit box, though how, when or by whom they were taken from the bank safe and returned to the Camerer safe-deposit box is not explained. Irwin gave Camerer the following receipt and agreement:

“California Savings & Commercial Bank of San Diego

San Diego, Cal., Nov. 21, 1929

Bonds borrowed

from C. B. Camerer

by I. I. Irwin

As security for the return of said Bonds I hereby deposit with C. B. Camerer

Certificate No. /59 for two hundred (200) shares of the capital stock of the California Savings & Commercial Bank of San Diego to be redelivered to me upon the return by me to C. B. Camerer of the above Bonds.

1/414% (one quarter of one per cent.) Premium as hire to be paid by I. I. Irwin to C. B. Camerer or $56/25 (Fifty six 25/100 Dollars) for each three months or less

November 21, 1929

I. I. Irwin.”

On December 31, 1929, the bank again needed funds to make up its deficit. Irwin had one of his employees execute a promissory note to the bank in the sum of $23,000 and pledged $23,000 par value, of respondent's securities for the payment of this note. The money was deposited to the credit of the employee, transferred to Irwin's account, then transferred to the profit and loss account of the bank. These securities are now in the possession of the Superintendent of Banks.

On January 8, 1930, Irwin telephoned the residence of respondent. He was not at home and Irwin explained to Mrs. Camerer that he could use more securities under the same arrangments as before. She communicated with her husband who consented to the transaction. She went to the bank and opened the safe-deposit box, where the exact securities which Irwin desired to use were reposing. She delivered them to Irwin and took a receipt in substantially the same form as the one dated November 21, 1929. The securities were the identical ones pledged to the bank to secure the note of December 31, 1929. How these securities were returned to the safe-deposit box does not appear unless an explanation is offered in the testimony of Irwin that they might have been delivered to the bank after the date of the note.

Some time after the 1st of January, 1930, the bank returned to Irwin $54,000 of the money he had paid to it. Later, on demand of other officers of the bank, Irwin paid the bank over $70,000 of his private funds which were used to adjust irregular transactions not connected with his use of the Camerer securities. Some time before the bank was closed, and after January 8, 1930, officers of the bank, other than Irwin, learned that the securities “sold” to the bank in September and pledged on December 31, 1929, were not the property of Irwin but belonged to Camerer.

Numerous other facts were developed at the trial which form the basis of extended arguments in the briefs. From the view we take of the case it is not necessary to extend this opinion by detailing those facts or considering the questions of law which counsel raise and are based upon them.

The trial court found that the bank was insolvent on July 23, 1930; that it was taken over by the Superintendent of Banks on that day, together with the Camerer securities of the par value of $44,500; that these securities have remained in the possession of the Superintendent of Banks; that Irwin, in September and December, 1929, had no right nor authority to sell, transfer, pledge, or convey any interest in the securities to the bank and that the purported sale and pledge were made without the knowledge or consent of Camerer; that the money derived from the “sale” and pledge of the securities went into the funds and assets of the bank; that the receipt given by Irwin to Camerer on November 21, 1929, was given after the purported “sale” to the bank of the same securities described in the receipt; that the same was true of the receipt dated January 8, 1930; for the securities pledged to the bank on December 31, 1929; that Camerer had no notice or knowledge of the sale or pledge of his securities until after the bank was closed on July 23, 1930; that all, or most of, the securities so sold or pledged to the bank were purchased by Camerer through the bank, which fact was known to the assistant cashier of the bank at the time of the purported “sale” and pledge; that the two receipts for the securities dated November 21, 1929, and January 8, 1930, and signed by Irwin individually were executed by him for and on behalf of and for the benefit of the bank; that all the interest coupons were detached from the securities while in possession of the bank, delivered to Irwin or the agent of Camerer, and deposited in Camerer's personal account in the bank; that all of the “sales” of the Camerer securities to the bank, and their pledge, between the fall of the year 1927 and January 9, 1930, were made by Irwin wrongfully, without any authority and for the purpose of showing fictitious assets of the bank in order to deceive the Superintendent of Banks; that the bank had notice and knowledge through its officers that Irwin did not have title to the securities at the time of their “sales” and pledge; that the bank received the benefit of the unlawful sale and pledge of the securities to it.

All of the foregoing findings are supported by ample evidence or by reasonable inferences to be drawn from it.

The trial court made the following finding: “That in the transactions above referred to the said plaintiff acted in all respects as an ordinary, prudent person would act, having full confidence at all times in the integrity and honesty of the said defendant Irwin as president of the said California Savings & Commercial Bank of San Diego, * * * plaintiff was not negligent in accepting the receipts above referred to or in permitting the said California Savings & Commercial Bank of San Diego to borrow the said bonds and securities as represented by said receipts above referred to, and the said plaintiff was not negligent in any of the acts done or taken by him, and was not negligent in the omission of any acts whatsoever.” This finding is seriously assailed by appellants.

It will shorten this opinion to frankly state that if the bank were not an insolvent institution with its assets in the possession of the Superintendent of Banks, but were a going concern, we would unhesitatingly affirm a judgment against it which would require the return to Camerer of his securities which had been taken from his possession by the dishonest acts of the president of the bank. We are not impressed with the argument that Irwin was acting in his private and not his official capacity in obtaining possession of the securities and in “selling” and pledging them to the bank. We are equally unimpressed with the argument that the receipts signed by Irwin on November 21, 1929, and January 8, 1930, gave Irwin authority to sell or pledge the securities. The “sale” occurred in September, 1929, two months before the first receipt was executed, and the pledge on December 31, 1929, a number of days before the second receipt was signed and delivered to Camerer. He had no knowledge of a prior conversion of his securities. That a person cannot ratify the unauthorized act of another, of which he had no knowledge, is too elemental to need support of authority. We are equally unimpressed with the argument that the bank and its officers, other than Irwin, neither had nor should have had notice of the fraudulent character of the several transactions in which Irwin purported to “sell” and pledge the securities. The bank was not to dispose of any of them but was to hold them for repurchase by Irwin. They were not to be placed among the securities owned by the bank, but were kept separate until a bank examiner ordered the practice discontinued a short time before the bank was closed. The coupons were clipped and delivered to Irwin, he giving his check to the bank for their face value. The coupons, or most of them, were deposited to Camerer's personal account. The “sales” were known to be “wash sales.” The signer of the note was known to be a “dummy” and at least two officers of the bank objected to making the loan. A large part, if not all of the securities, were purchased by the bank for Camerer. All the transactions with the securities were made for the purpose of concealing the losses of the bank and deceiving the Superintendent of Banks as to its actual condition. Surely these and other facts which must have been known to the responsible officers of the bank should have caused them to inquire into the good faith of the transactions.

We must inquire into the position of the Superintendent of Banks, representing as he does the innocent depositors and other creditors of the bank, and determine if he can successfully defend this action when the bank could have no adequate defense.

The Superintendent of Banks in taking over an insolvent bank acts for the creditors of the institution and its depositors. Hoff v. First State Bank of Watson, 174 Minn. 36, 218 N. W. 238; In re Farmers' Exchange Bank of Toronto, 55 S. D. 190, 225 N. W. 307; First State Bank of Herrick v. Conant, 117 Neb. 562, 221 N. W. 691; Bush v. Lien, 57 S. D. 501, 234 N. W. 29; Cockrill v. Abeles (C. C. A.) 86 F. 505; Case, as Receiver, v. Terrell, 11 Wall. 199, 20 L. Ed. 134; Kennedy v. Gibson, 8 Wall. 498, 19 L. Ed. 476.

The Superintendent of Banks, in taking over the assets of an insolvent bank, and acting for the creditors and depositors, can assert defenses which are not available to the bank. Wood v. Kennedy, 117 Cal. App. 53, 3 P.(2d) 366; Texas & Pac. Ry. Co. v. Pottorff, 291 U. S. 245, 54 S. Ct. 416, 78 L. Ed. 777; Hamor v. Taylor-Rice Engineering Co. (C. C.) 84 F. 392; Bank of Orland v. Harlan, 188 Cal. 413, 206 P. 75; First National Bank v. Reed, 198 Cal. 252, 244 P. 368.

The findings negative negligence on the part of the plaintiff in his dealing with Irwin and the bank. After examining a long line of California cases we have concluded that lack of negligence alone on the part of Camerer is not necessarily all that is required to resolve the equities of the case in his favor and against the Superintendent of Banks representing creditors and depositors. In Moss v. Bowman, 116 Cal. App. 720, at page 727, 3 P.(2d) 377, 380, it is said: “‘In Shirey v. All Night and Day Bank, 166 Cal. 50, 134 P. 1001, the court said: “Where the true owner holds out another, or allows him to appear as the owner of or as having full power of disposition over the property, and innocent third parties are thus led into dealing with such apparent owner, they will be protected. Their rights in such cases do not depend upon the actual title or authority of the party with whom they deal directly, but are derived from the act of the real owner, which precludes him from disputing, as against them, the existence of the title or power, which through negligence, or mistaken confidence, he caused or allowed to appear to be vested in the party making the conveyance.” See Schultz v. McLean, 93 Cal. 329, 28 P. 1053; Gardiner v. McDonogh, 147 Cal. 313, 81 P. 964; Chucovich v. San Francisco Securities Corp., 60 Cal. App. 700, 214 P. 263.’ In the case of Powers v. Pacific Diesel Engine Co., 206 Cal. 334, 274 P. 512, 514, 73 A. L. R. 1398, it was said: ‘* * * that where the true owner clothes another with the indicia of ownership of property, and therefore the apparent authority to transfer title thereto, and innocent third parties are thereby led into dealing with such apparent owner, the true owner will be estopped to deny that the apparent authority is the real authority. Code Civ. Proc. § 1962, subd. 3. In such cases the equities are found to be in favor of the bona fide purchaser rather than in favor of the owner who has by his own conduct clothed another with the power to commit the fraud.”’ See, also, Sidney v. Wilson, 67 Cal. App. 282, 227 P. 672; Otis Elevator Co. v. First National Bank, 163 Cal. 31, 124 P. 704, 41 L. R. A. (N. S.) 529; Maynard v. Firemen's Fund Ins. Co., 34 Cal. 48, 91 Am. Dec. 672; Bedell v. Herring, 77 Cal. 572, 20 P. 129, 11 Am. St. Rep. 307; Butters v. Brawley Star, 48 Cal. App. 57, 191 P. 987; Rapp v. Fred W. Hauger Motors Co., 77 Cal. App. 417, 24 P. 1067; Hollywood Holding, etc., Corp. v. Oswald, 119 Cal. App. 21, 5 P.(2d) 963; Smeade v. Rosen, 121 Cal. App. 79, 8 P.(2d) 507.

When we measure the conduct of Camerer and Irwin by these rules, we are forced to the conclusion that through misplaced confidence in Irwin, Camerer put into his hands the power to commit the fraudulent acts which we have detailed. The securities were made payable to bearer. Irwin had free and unlimited access to them. After they were wrongfully removed from the safe-deposit box by Irwin and “sold” and pledged, they again found their way back into the box and the possession of Camerer. He caused them to be delivered to Irwin, or “hired” to the bank as he expressed it, accepted compensation for their hire and security for their return. He was told that the bank expected to make a profit on the transactions. In accepting a compensation for the hire of the securities a reasonable man must have supposed that something would be done with them, other than letting them repose in the vaults of the bank, to make a profit over the interest they regularly earned. The facts of this case bring it well within the rule that a person who through misplaced confidence in another puts it in the power of the other to injure innocent third parties must bear the loss occasioned by the wrongful act of the party in whom he misplaced his confidence.

The portion of the judgment appealed from is reversed.

MARKS, Justice.

We concur: BARNARD, P. J.; JENNINGS, J.