Aetna Cas. & Sur. Co. v. Lindell Trust Co.

• Decision Date: 18 July 1961
• Docket Number: No. 30558,30558
• Citation: 348 S.W.2d 558
• Court: Missouri Court of Appeals
• Parties: AETNA CASUALTY & SURETY COMPANY, a Corporation, (Plaintiff) Appellant, v. LINDELL TRUST COMPANY, a Corporation, (Defendant) Respondent.

Page 558

348 S.W.2d 558

AETNA CASUALTY & SURETY COMPANY, a Corporation, (Plaintiff) Appellant, v. LINDELL TRUST COMPANY, a Corporation, (Defendant) Respondent.

No. 30558.

St. Louis Court of Appeals, Missouri.

July 18, 1961.

Motion for Rehearing or to Transfer to Supreme Court Denied

Sept. 5, 1961.

Coburn, Croft & Cook, Alan C. Kohn, St. Louis, for appellant.

John S. Marsalek, Moser, Marsalek, Carpenter, Cleary, Jaeckel & Hamilton, St. Louis, for respondent.

RUDDY, Judge.

This action was brought in three counts by Aetna Casualty & Surety Company, a corporation (hereinafter referred to as 'Aetna') against the Lindell Trust Company, a corporation (hereinafter referred to as 'Trust Company'), to recover the amount which it, as insurer of an employee of International Purchasing & Engineering Company (hereinafter referred to as 'International'), paid to said International under the terms of a fidelity bond, wherein Aetna insured International for any losses occasioned by unauthorized endorsements of checks payable to International. Aetna appeals from a judgment in favor of the Trust Company.

It was alleged in each count of Aetna's petition that each of the three checks involved was made payable to the 'International Purchasing and Engineering Company' by the makers of said checks and that Lester F. Herman had endorsed each of said checks without authority and, subsequently, each 'check was cashed by the defendant Lindell Trust Company upon the purported endorsement of the International Purchasing & Engineering Company.' It was further alleged that the purported endorsement of International was wholly unauthorized and that International never received any of the proceeds of said checks.

It was further alleged in each count of said petition that the Trust Company subsequently collected the proceeds of said checks from the drawee banks and that as a result thereof said Trust Company 'is indebted to the International Purchasing & Engineering Company for money had and received for the use and benefit of the International Purchasing and Engineering Company' in the aggregate sum of the three checks.

It is next alleged in each count of the petition that there was in full force and effect a fidelity bond executed by Aetna, payable to International, covering losses sustained by the unauthorized endorsement of checks payable to International by officers and employees of said International. It was further alleged in each count of said petition that by reason of the unauthorized endorsements of said checks by Herman, Aetna paid the International, under the terms of the bond, the loss represented by the total of the face amount of the checks involved and 'took in exchange therefor * * * a full assignment of all rights, legal or equitable, of the International Purchasing & Engineering Company against the Lindell Trust Company and others' arising from the facts stated in the petition. In its answer the Trust Company admitted that it cashed the checks and received the proceeds of said checks from the drawee banks.

The cause was tried by the trial judge without a jury. The facts are undisputed. Only one witness testified for Aetna and no witnesses were offered by the Trust Company.

The testimony of Fred Kaiser showed that he was President of International in the year 1955 and the company at that time was engaged in the manufacture and sale of garbage disposers. Lester Herman was employed by International as a salesman. At no time during Herman's employment was he an officer of International. He was hired for the specific purpose of selling merchandise for International. It was never the duty of Herman to endorse or cash checks payable to International. He never had such authority.

International received three checks payable to its order. One check was in the amount of $455.52 and was drawn on the Bank of California by Food Service Installations of Tacoma, Washington. A second check was in the amount of $487.90 and was drawn on the Plaza Bank of St. Louis by the Missouri Pacific Employees Hospital Association. The third check was in the amount of $304.50 and was drawn on the Northbrook Trust and Savings Bank of Northbrook, Illinois, by Browne-Haldeman Distributing Company. Herman obtained possession of these checks in some unexplained manner and endorsed each of them 'International Purchasing & Engineering Co., L. F. Herman,' and cashed them at the Trust Company and retained the proceeds. The Trust Company collected the proceeds from the various drawee banks. International never received any of the proceeds represented by the collection of the three checks by the Trust Company. After International learned of the cashing of the checks by Herman, it wrote a letter to the Trust Company demanding reimbursement to it of the total amount of the three checks involved. This demand was refused.

Thereafter, International made a claim against Aetna and International was paid the total of the three checks by Aetna. Following this payment an assignment was executed by International, wherein all of its right, title and interest in and to any claims and demands it may have against the Lindell Trust Company were assigned to Aetna. At the time the checks were cashed by Herman International had no account with the Trust Company.

Another company known as the Export Packing Company was in some manner associated with International. Herman did not work for this company. Kaiser admitted that Herman purchased some tires and without authority charged them to either International or the Export Packing Company. It is not clear in the record when International learned of this unauthorized act. On another occasion, prior to the time the checks in question were cashed, Herman sold a garbage disposer to a customer and received payment in cash and by check. Herman retained the cash and the check for a week before turning it over to his employer.

During 1955 Kaiser saw letters wherein Herman held himself out as vice-president of International although he was never an officer of said company. When Kaiser was asked if he knew Herman was using the title of vice-president and general manager he answered, 'Not generally, no, sir.' He admitted Herman had signed some letters and other correspondence as vice-president and general manager and on occasion used a card on which Herman represented himself as vice-president of the company.

The general rule of law applicable to the facts of this case is found in 9 C.J.S. Banks and Banking, Sec. 254, p. 528, and is as follows:

'A bank collecting checks indorsed by an agent who has no authority to indorse checks obtains no title thereto and is liable to the true owner for the proceeds of the collection.'

A more definitive statement of the rule as followed in some Missouri cases is found in 9 C.J.S. Banks and Banking, Sec. 254, p. 526, as follows:

'As a general proposition, the deposit for collection of an instrument bearing a forged signature confers no rights on the bank of deposit; therefore, the person defrauded by the collection of the instrument may sue the collecting bank for the proceeds of the collection on the theory that the bank was a converter, that it received the proceeds for the use of the one entitled to the instrument, that the one paying the instrument relied on the collecting bank's warranty of prior indorsements, or that it was negligent in undertaking the collection without exercising the proper degree of diligence in ascertaining the genuineness of all signatures and the identity of its customers.'

This rule of law, as thus stated, finds support in the following cases: Universal Carloading and Distributing Co. v. South Side Bank, 224 Mo.App. 876, 27 S.W.2d 768; Strong v. Missouri-Lincoln Trust Co., Mo.App., 263 S.W. 1038, and Kansas City Casualty Co. v. Wesport Ave Bank, 191 Mo.App. 287, 177 S.W. 1092.

The rule as stated is followed in the majority of jurisdictions, though we must admit there is a lack of uniformity in the reasons given in the decisions for the enforcement of the rule.

The Trust Company contends that the trial court's judgment was correct because there was no proof that it, as a result of cashing the checks in question, was unjustly enriched. In support of its position in this respect it states that Aetna bottomed its right to recovery on the theory of money had and received and, having done so, and Aetna being a mere subrogee, it burdened itself with the duty of showing that superior equities existed in its favor. The Trust Company in support of this contention cites: United States Fidelity & Guaranty Co. v. First National Bank in Dallas, Tex. et al., 5 Cir., 172 F.2d 258; Meyers v. Bank of America, etc., Ass'n, 11 Cal.2d 92, 77 P.2d 1084; New York Title & Mfg. Co. v. First National Bank, 8 Cir., 51 F.2d 485, 487, 77 A.L.R. 1052; Louisville Trust Co. v. Royal Indemnity Co., 230 Ky. 482, 20 S.W.2d 71, 72; Washington Mechanics Sav. Bk. v. District Title Ins. Co., 62 App.D.C. 194, 65 F.2d 827; National Sur. Corp. v. Edw. House Co., 191 Miss. 884, 4 So.2d 340, 137 A.L.R. 697; American Bonding Co. v. State Sav. Bk., 47 Mont. 332, 133 P. 367, 46 L.R.A.,N.S., 557; American Surety Co. v. Bank of California, 9 Cir., 133 F.2d 160; Bank of Fort Mill v. Lawyers Title Ins.Corp., 4 Cir., 268 F.2d 313.

The aforesaid cases in some measure do support the Trust company's position but practically all of the cited authorities are predicated on the assumption that the Bank did not participate in a wrongful act or was not negligent in cashing the checks having a fraudulent endorsement of payee's name.

Where the participation of the Bank in the act of cashing the questioned checks is wrongful or negligent, recovery may be had against the Bank by the surety. Support for this may be found in one of the cases cited by the Trust Company. In American Surety Co. et al., v. Bank of California, supra, the court said:

'A surety may pursue the independent right of action of the original creditor...