CHRISTIAN v. CALIFORNIA BANK (1946)

From a judgment in favor of defendant banks predicated upon the sustaining of their demurrer without leave to amend to plaintiff's complaint which sought to recover $3,500 for having wrongfully paid a cashier's check, plaintiff appeals.

The essential facts appearing in plaintiff's complaint as amended are these:

On June 4, 1945, plaintiff purchased from defendant Security Bank a cashier's check payable to his order in the amount of $3,500. Plaintiff then endorsed such check by placing his name on the back of the same. Below his endorsement was placed a rubber stamp reading thus:

‘Pay to the order of BANK OF AMERICA

303

National Savings & Trust Association S. & R. Produce Co.'

Plaintiff then delivered the check to Bill Rotsios with instructions to deposit it in the Bank of America to the account of S. & R. Produce Company. Plaintiff and Mr. Rotsios had previously agreed to enter into a partnership for the conduct of a wholesale dealers' market under the name of S. & R. Produce Company. On June 5, 1945, Mr. Rotsios took the check to the California Bank, and without the knowledge or consent of plaintiff he and the defendant California Bank blocked out the rubber stamp endorsement on the back of the check and Mr. Rotsios then endorsed the check and deposited it in his personal account at the defendant California Bank. The deposit was disposed of by checks drawn by Mr. Rotsios on this account. Defendant Security Bank paid the amount of the check through the Los Angeles Clearing House to the California Bank.

This is the sole question necessary for us to determine:

Did the facts which were alleged in the complaint as amended, set forth above, constitute a cause of action against defendant banks?

This question must be answered in the negative and is governed by these pertinent rules of law:

1) Where the payee of a check, endorses it in blank, the instrument so endorsed is payable to bearer and may be negotiated by delivery. Civil Code, sec. 3115.

2) Mere knowledge of facts sufficient to put a prudent man on inquiry without actual knowledge of a defect, or a mere suspicion of an infirmity or defect of title, does not preclude the transferee of a negotiable instrument from occupying the position of a holder in due course. (Smith v. Armstrong, 85 Cal.App. 624, 631, 260 P. 347; Merced Security Saving Bank v. Bent Bros., 207 Cal. 652, 656, 279 P. 765.)

3) The holder of a negotiable instrument may at any time strike out any prior endorsement which is not necessary to his title. (Civil Code, sec. 3129.)

Applying the foregoing rules to the facts of the instant case it appears that plaintiff endorsed the check in blank. Hence it was payable to the bearer and delivery of the instrument is conclusively presumed as to all holders in due course.

Since there is no allegation that defendant California Bank had knowledge of any facts which would justify the conclusion that its failure to make inquiry arose from a suspicion that investigation would disclose a vice or defect in the instrument, it became a holder in due course of the check with the result that a valid delivery thereof to Mr. Rotsios was conclusively presumed.

Mr. Rotsios' act in striking out the rubber stamp endorsement or directing the bank to do so was authorized under the third rule above stated. Since defendant California Bank became a bona fide holder in due course without notice of any defect in the instrument, it is clear that plaintiff has failed to state a cause of action against either or both defendant banks.

For the foregoing reasons the judgment is affirmed.

McCOMB, Justice.

MOORE, P. J., and WILSON, J., concur.