American Sash & Door Co. v. Commerce Trust Co.

• Decision Date: 08 February 1933
• Docket Number: 30410
• Parties: American Sash & Door Company, a Corporation, Appellant, v. Commerce Trust Company, a Corporation
• Court: Missouri Supreme Court

56 S.W.2d 1034

332 Mo. 98

American Sash & Door Company, a Corporation, Appellant, v. Commerce Trust Company, a Corporation

No. 30410

Supreme Court of Missouri

February 8, 1933

Appeal from Jackson Circuit Court; Hon. A. Stanford Lyon Judge.

Reversed and remanded (with directions).

James G. Smart for appellant.

(1) The rule is not that the bank should exercise reasonable care but its obligation is contractual that it will pay only in the manner directed by the depositor. "Payments made upon forged indorsements are at the peril of the bank unless it can claim protection upon some principle of estoppel or by reason of some negligence chargeable to the depositor," which must be the direct and proximate cause of such payments. "These rules are so familiar and so well established and illustrated by the adjudged cases that a bare reference to them is all that is needful here." (The quoted lines are from the New York Court of Appeals in Shipman v. Bank, infra, page 327); Sec. 810, R. S 1919; Shipman v. Bank of the State of New York, 126 N.Y. 318; Seaboard Natl. Bank v. Bank of America, 193 N.Y. 26, 85 N.E. 29; Natl. Surety Co. v. Natl. City Bank, 172 N.Y.S. 413; Strang v. Westchester County Natl. Bank, 235 N.Y. 68; United Cigar Store Co. v. American Silk Co., 171 N.Y.S. 480, affirmed 229 N.Y. 532; Mercantile Natl. Bank v. Silverman, 132 N.Y.S. 1017, affirmed 210 N.Y. 567; Jordan-Marsh Co. v. Natl. Bank, 201 Mass. 397, 87 N.E. 740; Natl. Bank v. New First Natl. Bank, 7 Ohio App. 68; St. Paul v. Merchants Natl. Bank, 151 Minn. 485, 187 N.W. 516; Natl. Union Fire Ins. Co. v. Mellon Natl. Bank, 119 A. 910; McCornick v. Central St. Bank, 211 N.W. 542; American Express Co. v. Peoples Savings Bank, 192 Iowa 366, 181 N.W. 701; Lieber v. Fourth Natl. Bank of St. Louis, 137 Mo.App. 158; Merchants Bank of Jefferson City v. Prudential Ins. Co., 110 Mo.App. 62, 84 S.W. 101; Kenneth Inv. Co. v. Bank, 96 Mo.App. 125; Miners & Merchants Bank v. St. Louis Smelting Co., 178 S.W. 211. (a) Mrs. Hubbard, the bookkeeper who prepared the checks, and Mr. Simms, the secretary and treasurer who signed them, were trusted and experienced employees of plaintiff and the evidence shows no negligence on their part in the issue of these checks unless it be their failure to detect at the time the clever fraud of Tschupp. But, assuming they were negligent in this respect, which we deny, such negligence was not and could not be the direct or proximate cause of the payments by the defendant of the checks whose endorsements were so forged. Such negligence, if any, did not mislead nor throw defendant off its guard in making such payments. "The drawer of a check, who through failure to discover the fraud that is being practiced upon him, makes the check payable to the order of a fictitious payee in ignorance of that fact stands in the same position with reference to the bank upon which it is drawn as when his check is payable to the order of a real person. His negligence in so drawing the check is immaterial unless it directly and proximately affects the conduct of the bank in paying the check." (Italics ours.) McCornick v. Center State Bank, 211 N.W. 546; Jordan-Marsh Co. v. Bank, 201 Mass. 397, 87 N.E. 740; Seaboard Natl. Bank v. Bank of America, 193 N.Y. 33; Miners & Merchants Bank v. St. Louis Smelting Co., 178 S.W. 212; Cotton Oil Co. v. Bank of Steele, 200 Mo.App. 187; Bank v. Insurance Co., 110 Mo.App. 66; Lieber v. Bank, 137 Mo.App. 171; U.S. Storage Co. v. Central, etc., Bank, 343 Ill. 513; Los Angeles Inv. Co. v. Home Savings Bank, 180 Cal. 610; New Amsterdam Casualty Co. v. Albia State Bank, 239 N.W. 8; United Workmen v. Bank, 92 Kan. 888; Critten v. Chemical Natl. Bank, 171 N.Y. 219. (2) While the general rule, based upon a presumption of performance of duty by the agent, is that the knowledge of the agent, in the scope of his employment, will be imputed to his principal; there is an exception to the rule as well established as the rule itself. It is this: Where the agent is secretly engaged in carrying out a scheme of fraud against his principal, the presumption upon which the general rule is based breaks down and the knowledge of the agent of his fraud will not be imputed to his principal, or as expressed by Judge Taft (in Thomson-Houston Electric Co. v. Capital Electric Co., 65 F. 343): "The truth is that where an agent, though ostensibly acting in the business of the principal, is really committing a fraud, for his own benefit, he is acting outside of the scope of his agency, and it would therefore be most unjust to charge the principal with knowledge of it." Allen v. Railroad Co., 150 Mass. 206, 22 N.E. 917; Shipman v. Bank, 126 N.Y. 331; Jordan-Marsh Co. v. Bank, 201 Mass. 397; Mutual Life Ins. Co. v. Hilton Green, 241 U.S. 623; St. Paul v. Merchants Natl. Bank, 151 Minn. 485, 187 N.W. 516; Strang v. Westchester County Natl. Bank, 235 N.Y. 68; Kenneth Investment Co. v. Bank, 96 Mo.App. 142; Hickman v. Green, 123 Mo. 165; Bank v. Lovett, 114 Mo. 519; Trabor v. Hicks, 131 Mo. 192; Merchants Bank of Jefferson City v. Insurance Co., 110 Mo. 62; Lieber v. Bank, 137 Mo.App. 158; Kegan v. Park Bank, 8 S.W.2d 870; State v. Pierce, 7 S.W.2d 269; Bartel v. McCallister, 316 Mo. 129, 289 S.W. 818; Merrimac Trust Co. v. Johnson, 220 Mo.App. 686, 293 S.W. 520; Lomax v. Linn County Bank, 1 S.W.2d 206; Bank of Noel v. Chamberlain, 14 S.W.2d 48; Allen v. South Boston Railroad Co., 150 Mass. 206; Peoples Natl. Bank v. Morris, 148 S.E. 830; Brannan's Negotiable Instruments Law (4 Ed.) p. 98; 2 Mechem on Agency (2 Ed.) secs. 1815, 1825; 2 Pomeroy's Equity Jurisprudence (4 Ed.) sec. 675, p. 1355; 2 C. J. sec. 549; Seaboard Natl. Bank v. Bank of America, 193 N.Y. 33; Leather Mfgers. Bank v. Morgan, 117 U.S. 117; Hardy Bros. v. Chesapeake Bank, 51 Md. 588; American Sash & Door Co. v. Commerce Trust Co., 25 S.W.2d 545; U.S. Storage Co. v. Central, etc., Bank, 343 Ill. 516, 175 N.E. 82; Los Angeles Inv. Co. v. Home Savings Bank, 180 Cal. 606; Natl. Surety Co. v. Manhattan Co., 252 N.Y. 247, 169 N.E. 372; Ward v. First Natl. Bank of Dexter, 27 S.W.2d 1066; Emery v. N. Y. Life Ins. Co., 316 Mo. 1292, 295 S.W. 571; Groves v. Prudential Trust Co., 144 N.E. 93, 249 Mass. 325; United Workman v. Bank, 92 Kan. 883; Critten v. Chemical Natl. Bank, 171 N.Y. 227. (a) If, under the circumstances, there was a likelihood that Tschupp would tell his principal of his frauds and forgeries, a presumption of imputed knowledge might be founded on such likelihood; but it is against all human experience to affirm that such likelihood existed when secrecy was essential to the successful consummation of his fraudulent scheme. Kenneth Investment Co. v. Bank, 96 Mo.App. 144; Gunster v. Scranton City Bank, 181 Pa. St. 338.

Atwood, Wickersham, Hill & Chilcott and James E. Goodrich for respondent.

(1) The plaintiff corporation was negligent in the preparation of its payroll checks. Its system (?) was so bad as to invite these frauds. (2) The plaintiff corporation delegated to three persons, Tschupp, Hubbard and Simms, the preparation of the payroll and checks and the acts and intentions of each in the scope of their duties were the acts and intentions of the plaintiff. (3) The mere signing of the checks by Simms was perfunctory and involved no judgment or discretion. In signing the checks he really had no "intention" that is pertinent or material to the issues here involved. (4) The preparation of the checks by Mrs. Hubbard was merely clerical and involved no judgment or discretion. In preparing the checks she really had no "intention" that is pertinent or material to the issues here involved. (5) Tschupp who prepared the payroll list was the only agent of the plaintiff corporation who exercised any discretion in the premises and the only one of the three who really had any "intention" in the preparation of the checks that is pertinent or material. (6) This cause is covered by the Missouri Negotiable Instruments Act, Section 796, R. S. 1919. (7) The Negotiable Instruments Act was enacted to govern and protect real instruments, not spurious ones. Bank of England v. Vagliano Brothers, L. R. 1891, App. Cas. 107. (8) A named payee who has no interest in a check, and not intended by the person making it so payable to have any interest, is a "fictitious" person. The English and American courts, Federal and State, are in full accord on this proposition. Bank of England v. Vagliano Brothers, L. R. 1891, App. Cas. 107; Phillips v. Mercantile Natl. Bank, 140 N.Y. 556, 23 L. R. A. 584; Hackensack Trust Co. v. Hudson Trust Co., 197 N.Y.S. 158; Norton v. City Bank & Trust Co., 294 F. 839; United States v. Chase Natl. Bank, 250 F. 105. (9) In this case "the person making it so payable" was the plaintiff corporation. It was not Simms who signed the checks perfunctorily, but the plaintiff corporation itself, acting through Tschupp, Hubbard and Simms. (10) The fundamental issue here involved is one of agency, and estoppel. A corporation can only act through its agents, and under the law a corporation is bound by the acts of its agent, exercised within the scope of his duties, even though in so doing the agent commits a fraud on his principal. Gleason v. Seaboard Air Line Co., 73 L.Ed. 121; Equitable Life Assur. Society of the U.S. v. Natl. Bank of Commerce, 181 S.W. 1176. (11) Analysis of cases cited by appellant. (12) The court did not err in refusing to give any of the declarations of law requested by plaintiff. (13) The equities of the case demand that the defendant have judgment. St. Paul Fire & Marine Ins. Co. v. American Food Products Co., 21 F.2d 737.

Montgomery & Montgomery for Missouri Bankers Association, amicus curiae.

(1) The loss in this case, upon whomsoever it must eventually fall was wholly due to the...