
    WHITE GRAIN CO. v. BECKHAM COUNTY NAT. BANK.
    No. 16494
    Opinion Filed April 6, 1926.
    Rehearing Denied Nov. 9, 1926.
    1. Bills and Notes — 'Bills! of Exchange — Bank as Bona Fide Holder for Value.
    Where a bank becomes the owner for value of bills of exchange growing out of an ex-ecutory “bill of exchange arrangement” entered into by the drawer and the acceptor, where the bank is not a party to the arrangement, the bank is not a guarantor that the executory agreement will be carried out, although its officers may know of the ex-ecutory terms of the agreement.
    2. Pleading — Judgment on Pleadings — Lack of Defense.
    Where the answer of defendant does not state a defense to the plaintiffs petition, and it is apparent that the answer is not susceptible of amendment so as to state a defense, it is not error for the trial court to sustain the plaintiffs motion lor judgment on the pleadings.
    3. Judgment Sustained.
    Record examined, and held to require that the judgment be affirmed.
    (Syllabus by Shackelford, C.)
    Commissioners’ Opinion, Division No. 4.
    Error from District Court, Beckham County ; T. P. Clay,. Judge.
    Action by the Beckham County National Bank against White Grain Company and Farmers Co-operative Grain & Elevator Company. Judgment for plaintiff, and defendant White Grain Company brings error.
    Affirmed.
    B. D. Shear, E. E. Blake, and Chester L. Evans, for plaintiff in error.
    Wm. Townsend Pfeiffer and William Pfeif-fer, for defendant in error.
   Opinion by

SHACKELFORD, C.

The plaintiff in error was defendant, below, and the defendant in error was plaintiff. The parties will be referred to as plaintiff and defendant as they 'appeared in the trial court. The other defendant in the trial court will be referred to herein as the co-operative company.

This is an appeal from a judgment rendered in plaintiff’s favor and against the defendant upon the pleadings. The facts out of which the action grew are: That the cooperative company was doing business in Beckham county with the White Grain Company, by way of handling certain lines of merchandise being handled by each of the companies. The co-operative company needed financial assistance, and there was a contract entered into by which the White Grain Company should extend credit to the cooperative company through tb s plaintiff bank, where the co-operative company did its banking business, and referred to as a “bill of exchange arrangement”. A memorandum agreement in writing was signed by the two companies. Fallowing such arrangement defendant White Grain Company drew certain drafts in the nature of bills of exchange, payable to the order of the plaintiff bank, against the co-operative company, and accepted by it in writing, and negotiated to the bank for value. Three bills were not paid by either company, and the suit followed against both companies, as defendants, for their collection. Copies of the bills were attached to the plaintiff’s petition as exhibits “A,” “B,” and “C.” They are all substantially the same, except as to dates and amounts. Exhibit “A” is as follows:

“Sayre, Okla., April 22, 1924. The Beck-ham County National Bank, Sayre, Oklahoma.
“Pay to the order of the Beckham County National Bank, or bearer, $962.93. Nine hundred sixty-three and 93-100 Dollars. Drawn on and accepted by Farmers Co-operative Grain & Elev. Co. Paul J. Messer, Buyer of Produce.
“Payable at the Beckham County.Nation -T Bank, Sayre, Okla.
“By White Grain Co. C. M. Smith, Seller of Produce.”

Exhibit “B” is dated May 3, 1924, and is for $701.55; and Exhibit “C” is dated May 24, 1924, and is for $414.

The plaintiff bank was not a party to the bill of exchange agreement. It was agreed between the two companies that the 'bills of exchange should be indorsed and transferred.-to the bank, and co-operative company agreeing to receive and sell all shipments of produce made by defendant, and apply the proceeds to the payment of the bills of exchange.

The defense tendered by the defendant to the plaintiff’s action to recover the amount of the bills, is to the effect that while the bank was not a party to the agreement, the officers of the bank knew of the memorandum agreement between the two companies, and knew that the understanding and agreement was that the co-operative company should accept and sell shipments of produce made by defendant, and that the proceeds should be applied to the discharge of the bills of exchange; that thé co-operative company did receive and sell shipments and deposit the proceeds in the plaintiff bank, but plaintiff failed to apply such proceeds to the payment of the bills, but permitted the cooperative company to otherwise use the money. It is further alleged that the proceeds from the shipments made constituted a trust fund in the hands of the plaintiff bank with which to pay the bills of exchange. The plaintiff bank moved for judgment on tbe pleadings, and tbe motion was sustained and judgment rendered in favor of tbe plaintiff bank and against tbe defendant "White drain Company. Tbe White Grain Company" prosecutes appeal.

Tbe assignments of error are to tbe effect tbab tbe court erred in sustaining tbe motion for judgment on tbe pleadings, and in rendering tbe judgment. The pleadings constitute the facts before tbe court; £nd it is well settled that tbe plaintiff’s motion for judgment on tbe pleadings partakes of tbe nature of a demurrer by plaintiff to the defendant’s answer. Goode v. First National Bank, 88 Okla. 110, 211 Pac. 105; Hill v. Bucy, 95 Okla. 275, 219 Pac. 124. In tbe last case cited it was held by this court tbab a motion for judgment on tbe pleadings should not be sustained, if tbe pleading at which tbe mo: tion is leveled is susceptible of amendment so as to state a cause of action or a defense. The question here presented is, under tbe decisions in tbe litigated cases, do tbe facts alleged in defendant’s answer constitute a defense as pleaded, and if not, is tbe answer susceptible of amendment upon tbe same facts so as to state a defense?

It seems to be plain that both tbe drawer and acceptor of tbe bills of exchange became liable to plaintiff for tbe amount of tbe bills when plaintiff took them for value. It seems that this bill of exchange agreement amounts to nothing more than an arrangement between tbe two companies, by which defendant White Grain Company lent its credit to tbe co-operative company through plaintiff bank to tbe extent of tbe bills. In the absence of any other arrangement or agreement, tbe parties to 'the bills were in tbe position of principal and surety on a promissory note made to plaintiff bank. Both parties were in the attitude of guaranteeing payment to tbe bank if it became the bolder for value. Tbe surety, tbe drawer of the bills, tbe party lending its credit, seeks to avoid liability on the ground that it bad made an agreement with tbe party to whom it was lending its credit, that certain funds coming into its hands should be applied to discharge tbe bills. Certainly it could not be insisted that such agreement would amount to a defense against an action brought upon the bills by tbe bank, unless the bank officers knew of it. So tbe question narrows to tbe point of whether or not knowledge of such an agreement- by tbe bank officials would bind tbe bank so as to release tbe surety if tbe proceeds of sales were not applied to payment of tbe bills. The bank was not a party to tbe agreement between tbe two companies. It ha'd knowledge that such an agreement bad been made, but was not in tbe attitude of guaranteeing to defendant that proceeds of any certain sales made by tbe co-operative company would be applied upon tbe bills. Although tbe bank officials might have know, or bad reason to think, that tbe bills drawn by defendant against tbe co-operative company and payable at plaintiff bank were for goods shipped by defendant, yet, under tbe arrangement, tbe face value of tbe bills was credited to the co-operative company, and the bank became tbe owner and bolder of tbe bills. It was not a part of the agreement of which tbe bank officers knew that- proceeds of sales of goods shipped by defendant to tbe co-operative company should be kept in a separate account, or that proceeds of tbe sales of such goods should be credited upon tbe bills. There seems to have been no duty upon plaintiff bank to get information with reference to any particular money deposited by the co-operative company as to whether it was proceeds from such sales. It appears also that the co-operative company bad control of its deposits and their application; and unless plaintiff bank. had been directed to credit deposits upon the bills, it would be its duty to place the deposits to tbe credit of the depositor in its checking account- and pay checks drawn against the account.

It is insisted in the argument by defendant, that a trust fund or special deposit could not be diverted by the bank and applied to some other indebtedness due the bank; but while it -is alleged in the answer that tbe proceeds of goods shipped to the co-operative company were a trust fund to be applied upon the bills, the agreement of v'hick the plaintiff knew did not provide for such proceeds to constitute a trust fund for tbe purpose claimed, nor did it provide that the proceeds from goods shipped should constitute a special deposit to apply on the bills and it is not alleged that the money was placed in the bank under special deposit, nor is it alleged that when deposits were made the bank officers knew that the deposits were proceeds from goods shipped by defendants; nor is it alleged that either party to the agreement ever directed the plaintiff to keep the money in a separate or trust fund, or to apply ■ the money so deposited upon the bills. It seems quite clear that the plaintiff bank could not be charged with the duty of properly discharging a trust fund, where it was not a party to the creation of such trust. Mere knowledge that the parties intended that a trust be created, without carrying such intention into effect in the bank, would not be sufficient. Craig v. Bank of Grady (Mo.) 238 S. W. 507. Tbe contract between tbe two companies was executory, and tbe bank became tbe owner of tbe bills before any performance of tbe contract other than their acceptance and negotation.

Note. — See under (1) 8 C. J. p. 742§ 1015 (Anno). (2) 31 Cyc. p. 608. (3) 4 C. J. p. 1129 §3122.

There seems to be no wide distinction between tbe situation hero presented and that which would have existed if tbe co-operative company and’ defendant bad executed to plaintiff their promissory note. Tbe bills sued upon partake of all the essential qualities and character of negotiable paper. Tbe bills were drawn by defendant, accepted by the co-operative company, and negotiated to plaintiff bank for value, just as defendant intended that they should be; and the same rules applicable in regard to negotiable paper are applicable here. Now, to charge the plaintiff bank with the duty of seeing that the co-operative company should perform its contract with defendant, to which the bank was not a party, or lose its rights against defendant, as drawer of the bills, and in the situation of a surety thereon, would attach to the bills inconvenient and repugnant conditions which would impáir and tend strongly to destroy the character and legal effect of commercial paper. Producers’ National Bank v. Elrod, 68 Okla. 248, 173 Pac. 650.

We think the petition of the plaintiff and the answer of the defendant disclose that defendant has no defense whatever. The motion for judgment on the pleadings was properly sustained.

The judgment is affirmed.

By the Court: It is so ordered.  