The parties are agreed that this appeal involves actions on cross claims made by First National Bank (FNB) against U.S. National Bank (USNB) and Portland General Electric Company (PGE), and by USNB against PGE in the nature of indemnity for the recovery of attorney fees allegedly authorized by ORS 74.2070(3). Both banks incurred attorney fees in defending a cause brought against them by plaintiffs herein. The plaintiffs, Mr. and Mrs. Riedel, brought an action against PGE, USNB and FNB charging all three defendants with recklessness and seeking general and punitive damages.
The parties are agreed on the following: On August 28, 1976, plaintiff wife made out a check in the sum of $37.50 on plaintiffs' joint checking account at FNB, payable to the Teamsters Union, Local # 162. The check was intended as payment of plaintiff husband's union dues. Thereafter, on September 8, PGE received the check in its Oregon City office. The plaintiffs denied having anything to do with delivering the Teamster check to PGE, although there was evidence that a friend of plaintiffs delivered the check to PGE to be applied on plaintiffs' bill. PGE did not notice that the check was made out to the Teamsters and endorsed the back of the check with PGE's stamp and credited plaintiffs' account. PGE then deposited the check with USNB, which endorsed the check with its stamp containing the letters "p.e.g.," which letters mean "prior endorsements guaranteed." No one at USNB is instructed to check to see if the endorsements on checks processed by it are proper, except that 500 checks are "fanned through" at a time by the bank personnel. Thereafter the check was delivered to FNB for payment, and FNB debited plaintiffs' account. The process is done mostly by computer and no one at FNB checked to see if the check was properly endorsed. As a result of the fact that the subject check was not delivered to the Teamsters, husband had to pay an additional $100 to reinstate him in the union.
Plaintiffs alleged recklessness on the part of all three defendants in cashing a check not properly endorsed and sought general damages in the sum of $1,000 and punitive damages in the sum of $10,000. In their respective answers, each defendant admitted that the check did not bear the endorsement of the Teamsters but denied any recklessness and affirmatively alleged contributory negligence on the part of plaintiffs in delivering the check to PGE. In addition, FNB filed cross claims against USNB and PGE, and USNB filed a cross claim against PGE.
At the conclusion of plaintiffs' case, the court granted the motions for involuntary nonsuit of both FNB and USNB on the grounds that the banks had both acted in a commercially reasonable manner in handling the check and, therefore, as a matter of law, there was no negligence on the part of either bank, despite failure to look for or discover the improper endorsement on the check. At the conclusion of the trial, the court found PGE and plaintiffs each 50 percent negligent, and awarded a judgment
The court had deferred hearing the cross claims until after the plaintiffs' case was concluded. The cross claims were drawn on the theory that PGE was liable to the banks for any judgment obtained against the banks by plaintiffs, because under the law PGE warranted the validity of the check to the banks; however, since the plaintiffs did not get a judgment against either bank, the banks sought to recover from PGE only their attorney fees incurred in the case.
The parties are agreed that the questions presented on appeal are: Are the judgments awarded by the court supported by the pleadings in the cross claims? Does ORS 74.2070(3) provide for recovery of attorney fees as an "expense" in a breach of warranty case? Under the allegations of the complaint, did PGE have a duty to defend the banks? We hold that ORS 74.2070(3) does not authorize an award of attorney fees in Oregon and that PGE had no duty to defend the banks on the record in this case. Accordingly, we do not reach the first question presented.
The banks contend that the award of attorney fees is authorized under ORS 74.2070(3):
The trial judge relied upon this section and Gresham State Bank v. O & K Con. Co., 231 Or. 106, 370 P.2d 726, 372 P.2d 187, 100 A.L.R.2d 654 (1962) as authority in awarding attorney fees. In doing so he was influenced by the decision in Bagby v. Merrill Lynch, Pierce, Fenner & Smith, Inc., 491 F.2d 192, reh. den. (8th Cir.1974).
The statutory language is silent as to attorney fees. The only "legislative" support for awarding attorney fees under this statute comes from the Official Comment to this section of the Uniform Commercial Code:
Comment 5 to UCC § 4-207(3). We assume, without deciding, that this is an "appropriate" case within the meaning of the comment (also assuming that the code section is applicable at all). Our attention has been directed to only two decisions concerning the award of attorney fees under this section: Bagby v. Merrill Lynch, Pierce, Fenner & Smith, Inc., supra, and Security Bank & Trust Co. of Miami, Okla. v. National Bank of Commerce of Tulsa, 9 UCC Rep.Serv. 291 (1971). Both cases involved
That policy is expressed as well as in any other place in Hughes v. Bembry, 256 Or. 172, 177-178, 470 P.2d 151, 154 (1970):
Given the historical antipathy of this court to awarding attorney fees in the absence of express authority and the legislature's presumed awareness thereof
The banks further contend that in Gresham State Bank v. O & K Con. Co., 231 Or. 106, 127-129, 370 P.2d 726, 372 P.2d 187, 100 A.L.R.2d 654 (1962) this "court allowed attorney fees in a declaratory judgment [sic] where no statute or contract provided for recovery of the fees. The banks should recover hereunder this authority." Our research does not disclose that case to be a declaratory judgment proceeding. The Abstract of Record found in Oregon Briefs, Vol. 1667, describes the cause as "SUIT IN EQUITY AND BILL OF INTERPLEADER." The complaint contained allegations commonly found in bills of interpleader, and the prayer was for a decree requiring the defendants to interplead and for reasonable attorney fees and all court costs and expenses to be paid out of the stake paid into the registry of the court. At 231 Or. 127-129, 370 P.2d 726, 736-737, cited to us by the banks this court speaks of the case as being one in interpleader. On the issue of the trial court's allowance of attorney fees to plaintiff, this court said:
Two main points are to be made about that case. There was no dispute among the parties as to whether the plaintiff was entitled to attorney fees as such, and the cause was one in interpleader. We find that case inapposite to the issue in this action.
The question remains whether the trial court's judgment for the respective banks is to be supported upon some other theory. The banks assert that they are entitled to affirmance on the theory that PGE had a duty to defend them and is liable for breach of that duty in an amount measured by the reasonable attorney fees they expended in defending themselves.
We first look to whether this claim is properly before us. The trial judge did not purport to award damages measured by the amount of attorney fees expended or incurred by the banks in defending themselves. Instead he awarded attorney fees themselves upon his holding that they were authorized by ORS 74.2070(3) and Gresham State Bank v. O & K Con. Co., supra. He made no reference to alternative theories of common law indemnity asserted by the banks in their memoranda or to breach of a duty to defend.
All parties have drawn our attention to cases in which we have discussed the duty to defend as depending upon the allegations of the complaint. Most of those cases involve whether an insurer was required to defend. Of course, the insurer's duty to defend must be found in the terms of the contract of insurance. The allegations of the complaint are then compared
In this case PGE's duty to defend the banks arises if it has breached warranties under ORS 74.2070 and if the allegations of the complaint, if true, disclose a breach of such warranties.
The banks contend, however, that the sequence of events described in the plaintiffs' complaint demonstrate that PGE breached its warranties under ORS 74.2070 to both banks. We quote pertinent parts of the statute:
If all of the allegations of the complaint are taken to be true, they do not establish that either or both of the banks paid, accepted or took the check in good faith. In order to maintain an action against PGE for breach of warranty each bank would have to plead and prove its good faith. That each bank recognized this is demonstrated by looking to its cross claim against PGE. In its three successive cross complaints against PGE and USNB, FNB alleged its own good faith. Both PGE and USNB denied that allegation. In its successive cross complaints against PGE, USNB alleges its own good faith, and PGE denies the allegations.
We hold that in this state of the pleadings and under the pertinent statute, PGE had no duty to defend the banks until the issue of good faith should be resolved favorably to the banks by trial of that issue.
For some reason not quite clear to us the banks take a fall back position that even if PGE had no duty to defend them, there may be an independent duty to pay a judgment secured by the plaintiffs against the bank in these circumstances. Assuming that to be true, we find it to have no application. The banks' respective motions for judgment of involuntary nonsuit against plaintiffs were allowed, and the banks had judgment against plaintiffs for the banks' cost and disbursements.
The banks also urge that they are entitled to prevail against PGE on a theory of common law indemnity. The short answer is that neither bank has pleaded or proven that it has discharged a duty to plaintiffs with respect to these consequential damages, which as between the bank and PGE should have been discharged by PGE. See, U.S. Fire Ins. Co. v. Chrysler Motors, 264 Or. 362, 365-366, 505 P.2d 1137 (1973); Restatement, Restitution, § 76. Compare, Kamyr, Inc. v. Boise Cascade Corp., 268 Or. 130, 519 P.2d 1031 (1974).
The disposition of these cross claims on the merits make it unnecessary to consider
The judgment is reversed.
We further note that the adjective "finance" could be construed to apply to both of the following nouns "charges" and "expenses." If so, attorney fees would not seem to be "finance expenses." PGE does not so argue, however, and the official commentary indicates that the section is meant to be read as if it said "expenses and finance charges."
Attorney fees have been allowed by this court in the absence of express contractual or statutory authority in Deras v. Myers, 272 Or. 47, 535 P.2d 541 (1975) and Gilbert v. Hoisting & Port. Engrs., 237 Or. 130, 384 P.2d 136, 390 P.2d 320, cert. den. 376 U.S. 963, 84 S.Ct. 1125, 11 L.Ed.2d 981 (1964). In those cases we grounded the award upon the inherent authority of a court of equity.
USNB in its amended answer did plead tender and rejection thereof by PGE.
Some of the banks' attorney fees were incurred before tender and rejection, but we need not examine that in light of our disposition of the entire claims.