Elmer Fox & Co. v. Commercial Union Insurance Co. of NY

• Decision Date: 29 August 1967
• Docket Number: Civ. A. No. 66-C-303.
• Citation: 274 F. Supp. 235
• Parties: ELMER FOX & COMPANY, a partnership, Plaintiff, v. COMMERCIAL UNION INSURANCE COMPANY OF NEW YORK, Defendant.
• Court: U.S. District Court — District of Colorado

274 F. Supp. 235

ELMER FOX & COMPANY, a partnership, Plaintiff, v. COMMERCIAL UNION INSURANCE COMPANY OF NEW YORK, Defendant.

Civ. A. No. 66-C-303.

United States District Court D. Colorado.

August 29, 1967.

Holme, Roberts & Owen, Peter H. Holme, Jr., Martin B. Dickinson, Jr., and Donald K. Bain, Denver, Colo., for plaintiff.

Yegge, Hall, Treece & Evans, Richard D. Hall, and Roland E. Gebert, Denver, Colo., for defendant.

MEMORANDUM OPINION AND ORDER

CHILSON, District Judge.

This is an action to recover the sum of $10,000.00 under Insuring Agreement I and $10,000.00 under Insuring Agreement V of a "Dishonesty, Disappearance and Destruction Policy" issued by Mercantile Insurance Company of America and assumed by the defendant. The action arises out of certain acts of Phillip E. Corey, who was an employee of the plaintiff.

The Court has heard the evidence and argument of counsel and has considered the written briefs submitted by the parties and is now duly advised.

The statement of facts set forth in plaintiff's opening brief is, with some minor exceptions, accepted by the defendant as "the statement of evidence in the case."

The Findings of Fact in this case are those set forth in plaintiff's opening brief with such modifications thereof as the Court deems appropriate to meet the objections of the defendant. These Findings of Fact are as follows:

FINDINGS OF FACT

At all times pertinent hereto Annsons, Inc., Bark, Inc., Concord Jewelry, Inc., Denmor, Inc., Edsons, Inc., Family, Inc. and Harmony, Inc. ("the jewelry companies") had a contract with plaintiff Elmer Fox & Company ("Elmer Fox"), an accounting partnership, to do their bookkeeping, to prepare financial reports, to handle the transfer of funds among bank checking accounts maintained by them and to do other related work. Except for Concord Jewelry, Inc. and Denmor, Inc., whose places of business were located in the Denver metropolitan area, each of the jewelry companies operated a retail jewelry business in a Gem discount store in another state and maintained a local checking account there. In addition, each of the jewelry companies maintained a general checking account in Denver. Except for Family, Inc., whose general checking account was with Guaranty Bank & Trust Co. for part of the time in question, all of the general accounts were with Denver United States National Bank. Local employees of the jewelry companies deposited daily receipts in the local accounts and the funds accumulated in the local accounts were frequently transferred to the general accounts by means of checks drawn on the local accounts and deposited in the general accounts. Payroll expenses, rent, purchase of merchandise and other operating expenses generally were paid by checks drawn against the general accounts. Morris Krulak & Co., a separate corporation, handled the purchase of merchandise from suppliers and acted as a wholesaler for the jewelry companies. Each of the jewelry companies purchased its merchandise from Morris Krulak & Co. All of the jewelry companies and Morris Krulak & Co. were owned by two brothers, Ralph and Bert Kleiger, except for a few shares owned by Max Zall.

Elmer Fox assigned an employee, Phillip E. Corey, who became a certified public accountant in June 1965, to handle the jewelry companies accounts. Corey did the bookkeeping work, prepared the necessary financial reports and either he or an employee working under his direction received the bank statements and cancelled checks of the jewelry companies. Corey worked under the general supervision of the Elmer Fox partners and in connection with the jewelry companies, he reported to Lynn Lawrence. Among Corey's duties was that of deciding when to transfer funds between the various accounts and preparing checks on the general accounts for payment of company obligations. He was not authorized to sign checks on the accounts, but prepared such checks for signature by certain designated partners of Elmer Fox or, on occasion, for signature by certain officers of the jewelry companies. The authorized signatures for withdrawals from the bank accounts were the President and Secretary of the respective companies and Bryden, Wegscheider and Lawrence, who were partners in Elmer Fox & Company and were designated in the bank resolutions as "Auditors." In order to facilitate performance of these duties Elmer Fox possessed rubber stamps reading "For deposit only" and "Edsons, Inc.-1701 Security Life Building-Denver, Colo. 80202" and similar rubber stamps for each of the other six jewelry companies. He used these stamps for the purpose of endorsing checks for deposit in the general checking accounts, including checks drawn on the respective local accounts of the jewelry companies.

On or about January 21, 1964, Corey, wholly without authority, opened a checking account in the name of Edsons, Inc. at The Central Bank and Trust Co. ("Central Bank"). In connection with this Corey executed a spurious certificate of banking resolution upon a form provided by Central Bank which represented that Corey was president of Edsons, Inc. and Ralph Kleiger secretary of Edsons, Inc. Corey signed his own name to this certificate and forged Kleiger's signature. Additionally Corey executed a signature card provided by Central Bank showing his own signature as president and the forged signature of Kleiger as secretary.

In fact, Corey was not and never had been an officer in Edsons, Inc. Kleiger in fact was secretary thereof. Corey took all of the foregoing action without the knowledge of any officer or employee of Edsons, Inc. or of any of the other jewelry companies or of any partner or other employee of Elmer Fox. No corporate resolutions were ever adopted by Edsons, Inc. authorizing signatures as aforesaid or the opening of the account.

Subsequently, and in ostensible compliance with established practice, Corey from time to time prepared checks payable to Edsons, Inc. and drawn upon existing bank accounts of the various jewelry companies. Corey affixed rubber stamps reading "For deposit only" and "Edsons, Inc.-1701 Security Life Building-Denver, Colo. 80202" to the checks and then obtained the signatures of authorized partners of Elmer Fox on the checks without disclosing to them his intent not to deposit them in accordance with established practice in the general account maintained at Denver United States National Bank in the name of Edsons, Inc.

Thereupon, Corey presented said checks to Central Bank for deposit in the spurious bank...