U.S. Fidelity & Guaranty Co. v. Eades

• Decision Date: 09 November 1965
• Docket Number: No. 12432,12432
• Citation: 144 S.E.2d 703,150 W.Va. 238
• Parties: UNITED STATES FIDELITY AND GUARANTY COMPANY, a Corporation, as assignee of Maryland Causalty Company, a Corporation, and United States Fidelity and Guaranty Company, a Corporation, in its own right, v. William A. EADES, III, and Princeton Bank and Trust Company, a Corporation.
• Court: West Virginia Supreme Court

Page 703

144 S.E.2d 703

150 W.Va. 238

UNITED STATES FIDELITY AND GUARANTY COMPANY, a Corporation as assignee of Maryland Causalty Company, a Corporation, and United States Fidelity and Guaranty Company, a Corporation, in its own right, v. William A. EADES, III, and Princeton Bank and Trust Company a Corporation.

No. 12432.

Supreme Court of Appeals of West Virginia.

Submitted Sept. 21, 1965.

Decided Nov. 9, 1965.

Syllabus by the Court

1. A trial court's written opinion may be made a part of the record by a court order, but it merely operates to point out the specific grounds under which the trial court acted.

2. When a draft or check is made payable to a fictitious person and this fact is known to the maker, it is a bearer instrument and is negotiable on delivery, but such bearer instrument is governed by the Negotiable Instruments Law and in order to be a holder in due course the transferee must have been a bona fide purchaser for value without notice.

3. The general rule is that a purchaser takes with notice only where he has actual knowledge, or has knowledge of the facts which make it bad faith on his part not to inquire or discover evidence of inequities, and certain facts or circumstances may or may not constitute notice, actual or imputed, because of failure to inquire.

4. Only matters contained in the pleading can be considered on a motion to dismiss under Rule 12(b) R.C.P., and if matters outside the pleading are presented to the court and are not excluded by it, the motion should be treated as one for summary judgment and disposed of under Rule 56 R.C.P. if there is no genuine issue as to any material fact in connection therewith. If a summary judgment is entered under Rule 56 R.C.P. it is a dismissal with prejudice; whereas, a judgment sustaining a motion to dismiss under Rule 12(b) R.C.P. is not a dismissal with prejudice.

5. If the matters submitted to the trial court outside the pleadings under the provisions of Rule 56 R.C.P. contain an issue of fact which may be material in the disposition of the case, it cannot be disposed of by summary judgment under Rule 56 R.C.P. and a trial on the merits should be held after proper pleadings are timely served under the provisions of Rule 12 R.C.P. Kwass, Stone & Blue, Fred O. Blue, Bluefield, for appellants.

Johnston & Holroyd, Robert E. Holroyd, W. Broughton Johnston, Princeton, for appellees.

BERRY, Judge:

This action was instituted in the Circuit Court of Mercer County by the United States Fidelity and Guaranty Company, a Corporation, as assignee of the Maryland Casualty Company, a Corporation, under a subrogation agreement and United States Fidelity and Guaranty Company, a Corporation, in its own right, against William A. Eades, III, a former employee of the Maryland Casualty Company, and the Princeton Bank and Trust Company, a Corporation, to recover moneys paid by the Bank to Eades on fifteen drafts issued by him and drawn on the Maryland Casualty Company, payable to fictious persons whose names were endorsed on the back of the drafts by Eades and presented by him to the Princeton Bank which accepted each of the drafts and delivered the amount of money indicated in each draft to Eades. The Princeton Bank, after accepting and paying the amount of the drafts to Eades, stamped an endorsement on the back of each draft guaranteeing all prior endorsements and forwarded the drafts to a bank in Baltimore where they were paid out of funds of the Maryland Casualty Company, the drawee of said drafts. A final judgment was rendered against Eades in favor of the plaintiff and such action is not involved in this case.

The other defendant, the Princeton Bank and Trust Company, filed a motion to dismiss the action as to it, or in lieu thereof to quash the return of service, on the ground that 30 days should be given it to serve its answer under the provisions of Rule 12(a) R.C.P. instead of the 20 days stated in the summons, and the failure to state a claim under which relief could be granted. No answer was filed by the defendant Bank and the plaintiff filed a motion for default judgment under Rule 55 R.C.P. on the ground that the Bank had failed to appear or otherwise defend the action relative to the allegation of negligence set forth in the complaint. On April 27, 1964, the trial court overruled the plaintiff's motion for default judgment and sustained the Bank's motion to dismiss because the claim failed to state a claim against it, and entered judgment in favor of the Princeton Bank and Trust Company dismissing the action. A timely motion to set aside the judgment dismissing the action was filed by the plaintiff which was overruled by the trial court on May 16, 1964, which in effect rendered final judgment dismissing the action on that date. Upon application to this Court an appeal from the judgment of the trial court of May 16, 1964 was granted on February 8, 1965.

The disposition of this case by the trial court was made under Rule 12(b)(6) R.C.P. on the ground that the complaint failed to state a claim upon which relief could be granted. This fact is clearly set out in the trial court's order dismissing the action. Apparently, certain facts were stipulated before the trial court, but the stipulation is not contained in the record before this Court. The written opinion of the trial court is included in the record before this Court and states at the outset that by agreement of counsel the facts set out in the opinion were presented to the court in connection with the defendant's motion to dismiss the action. However, the stipulation entered into by the attorneys for the parties as to what should be contained in the record presented to this Court on this appeal contains a statement to the effect that an assertion in the trial court's opinion with regard to the agreed statement of facts did not conform to and was not correct as to one of the issues between the parties. The appeal stipulation sets out the contention of each party with regard to such matter. The plaintiff's brief under the division 'Statement of the Case' contains the recital that the facts in this case are virtually as they appear in the complaint. The defendant's brief on the first page contains the following comment: 'The preliminary statements in so far as they are germane are set forth in the brief of plaintiffs and as the record is short, we feel that it is unnecessary to restate these matters, especially since no evidence was taken in the proceedings in the Circuit Court.'

Although a trial court's written opinion may be made a part of the record by a court order, when this is done it merely operates to point out the specific grounds under which the trial court acted. Woodruff v. Gilliam, 116 W.Va. 101, 109, 179 S.E. 873, 876; Robertson v. Vandergrift, 119 W.Va. 219, 193 S.E. 62; Wilson v. Hix, 136 W.Va. 59, 73, 65 S.E.2d 717, 726; Cottle v. Cottle, 129 W.Va. 344, syl. 5, 40 S.E.2d 863; Rollins v. Daraban, 145 W.Va. 178, 113 S.E.2d 369. Therefore, under the circumstances of the case at bar, considering the contents of the record, statements in the briefs filed on behalf of the respective parties and the motion to dismiss which the trial court sustained, the facts which are set out in the complaint will be used in the disposition of this case, since they are the only proper matters to be considered if the case is treated as disposed of under the provisions of R.C.P. 12(b)(6).

The material facts as alleged in the complaint are as follows:

'2. For several years preceding the institution of this action, defendant, Eades, was employed by Maryland Casualty Company (hereinafter called Maryland), as manager of its branch office located in the City of Bluefield, Mercer County, West Virginia, and engaged, on behalf of Maryland, in the investigation, negotiation and settlement of claims involving individuals or companies covered by insurance contracts written by Maryland. In such capacity, he had authority to settle legitimate claims involving his employer's insureds and authority to draw and sing claim drafts to legitimate claimants for payment of any losses covered by insured's policies--authority, at least, in this latter regard, up to the amount set forth in each of the drafts hereinafter recited.

'3. For at least the last five years in which Eades was an employee of Maryland, plaintiff, United States Fidelity and Guaranty Company (hereinafter called Company), was the obligor on a bond in the sum of $250,000 by which it agreed to indenity and hold harmless Maryland against any loss, including, inter alia, loss of property (money, currency, etc. as therein defined), occasioned by any dishonest or fraudulent acts of any of its employees regardless of where committed and regardless of whether committed alone or in collusion with others.

'4. Commencing in 1959, and while in the employ of Maryland but contrary to his authority, defendant, Eades, embarked upon a course of: issuing drafts through a named bank drawn to Maryland covering payments of alleged claims against [Maryland's] policy holders all of which were payable to the order of fictitious persons in specified amounts, endorsing payees' names thereon, but not his own, and presenting same to Bank where each one was accepted, cashed and endorsed by Bank and the moneys represented by said drafts turned over to him; all of which drafts are more particularly described and endorsed as follows:

'(a) Draft No. 167170, in the sum of $150.00, payable to Lucy Green, dated March 28, 1959, cancelled on April 2, 1959, and bearing on the reverse side thereof, above the line provided for endorsement by the named payee, the following legend: %'PREVENT FORGERY. Know your Endorser--Require Indentification, and also with this endorsement stamped thereon: Pay to the order of any bank, banker or trust company. All prior endorsements guaranteed.

Princeton Bank & Trust Company, Princeton, West Virginia'.

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