Barclay Kitchen, Inc. v. California Bank

• Citation: 208 Cal.App.2d 347,25 Cal.Rptr. 383
• Court: California Court of Appeals Court of Appeals
• Decision Date: 10 October 1962
• Parties: BARCLAY KITCHEN, INC., Plaintiff and Respondent, v. CALIFORNIA BANK, Defendant and Appellant. Civ. 25856.

Page 383

25 Cal.Rptr. 383

208 Cal.App.2d 347

BARCLAY KITCHEN, INC., Plaintiff and Respondent, v. CALIFORNIA BANK, Defendant and Appellant.

Civ. 25856.

District Court of Appeal, Second District, Division 4, California.

Oct. 10, 1962.

Rehearing Denied Oct. 26, 1962.

Hearing Denied Dec. 5, 1962.

Swanwick, Donnelly & Proudfit and Donald O. Welton, Los Angeles, for defendant and appellant.

Voegelin, Barton, Harris & Callister, Gary E. Gunderman and E. Talbot Callister, Los Angeles, for plaintiff and respondent.

BURKE, Presiding Justice.

Plaintiff-respondent Barclay Kitchen, Inc. (Barclay) by amended complaint sued and recovered judgment against defendant-appellant California Bank (Bank) and National Surety Corporation (Surety) for over $11,000 in losses resulting from the defalcations of Thelma T. Gianopulus, a trusted employee of Barclay. Surety takes no part in this appeal.

Mrs. Gianopulus was a 'one-man office' for Barclay. She acted as purchasing agent, bookkeeper, and performed other incidental duties. She was authorized to make deposits in Barclay's account with Bank and to withdraw up to $1,000 cash each week for use as change in the business over the weekend. These withdrawals, which were usually made in the amount of $900 per week, were to be redeposited to the account on the first banking day after the weekend. Mrs. Gianopulus failed to redeposit many of these $900 weekly cash withdrawals and fraudulently appropriated these sums to her own use.

To cover her defalcations, Mrs. Gianopulus deposited in Barclay's account on December 19, 1957, a Diners' Club check payable to Barclay in the amount of $4,260.48, along with $795.50 in cash. Bank accepted deposit tickets prepared by her indicating four separate deposits of $900 each and one deposit of $1,455.98. Similar transactions occurred on March 19, 1958, and on April 23, 1958.

Bank accepted the deposits in this form upon Mrs. Gianopulus' representation that it was necessary 'for bookkeeping purposes.'

The posting of deposits by Bank to depositors' statements of account is on the basis of individual deposit tickets. If several items are listed on one ticket, that sum is posted to the account; if each item is listed on a separate ticket, it is posted individually to the account. This is a customary and acceptable practice of Bank. However, by permitting Mrs. Gianopulus to submit several deposit tickets for the deposit of a single check, the resultant posting to the account misrepresented the single deposit as being several individual deposits in amounts corresponding to the amounts of change withdrawals. The inaccurate rendition of these deposits on the statement of account is the claimed basis of the Bank's liability.

The deposit slips themselves serve only as a preliminary step in the negligent act of Bank. Viewed alone the slips did not cause the loss because Barclay did not require duplicates and the originals were not seen by Barclay's accountants before the losses were discovered. However, acceptance of the deposit slips in the form in which Mrs. Gianopulus made them out caused the deposit amounts to be posted to Barclay's statements in a manner which misled Barclay to believe that certain statement credits were cash redeposits when in fact they were portions of Diners' Club checks. Therefore, viewed as a whole the deposit slips and the resulting postings to Barclay's statements combined as a cause in misleading Barclay, permitting Mrs. Gianopulus to carry out her scheme of defalcation.

Barclay's internal bookkeeping system also aided Mrs. Gianopulus to conceal her thefts. Testimony for Barclay indicated that meals purchased by customers of plaintiff on Diners' Club cards would be entered on the cash receipts journal and then posted to accounts receivable under Diners' Club. Mrs. Gianopulus never posted the receipt of the Diners' Club check of December 1957. She posted the Diners' Club checks involved in the second and their transactions in amounts respectively $1,800 less than the actual amounts of the checks. The effect of Mrs. Gianopulus' posting in this manner was to indicate on the books that more money was due from the Diners' Club than actually was owed, thereby reconciling her company books with the actual amounts she had deposited in the bank.

The discrepancy between the amounts paid by Diners'Club and the amounts owed by it were not readily apparent because Barclay closed its books at the end of the month, but the Diners' Club closed its books on the 24th of each month. This meant there was always an outstanding balance due from the Diners' Club, being the amount accruing from the 24th to the end of the month, plus the amount of the prior month. The difference could not be learned from the Diners' Club because they did not confirm balances owed by them.

Additionally, one McGee, Barclay's accountant who examined the books monthly, testified that in reconciling the bank statements, Mrs. Gianopulus represented to him that the $900 items in the three transactions were redeposits of weekend withdrawals; that the books and records so indicated; that he treated them as such and that the books balanced.

The court gave judgment on the theory of negligence against Bank for $11,467.67, the full amount of Barclay's loss. Judgment against Surety was $4,013.86, the amount of liability under its fidelity bond, but that amount is to be reduced by any recovery from Bank exceeding $7,453.81, the difference between the total loss and Surety's liability on the basis of subrogation. Only Bank has appealed from the judgment in favor of Barclay.

On appeal Bank raises two primary questions:

1. Whether or not Bank was justified in assuming that, because of her position with Barclay, Mrs. Gianopulus had authority to make the deposits in the manner indicated thereby estopping Barclay from contending Bank caused its loss.

2. Whether or not the acts of Bank in accepting deposits of a single check as several separate deposits was a breach of duty owed Barclay and a legal cause of Barclay's loss.

As subsidiary points Bank also contends:

3. The action is barred by laches because Barclay did not report irregularities in the bank statement as prescribed by bank rules.

4. As between Bank and Surety, Surety should bear the loss because the doctrine of subrogation does not apply in favor of a surety on a fidelity bond except against persons who participated in the wrongful act of the principal.

As to whether Mrs. Gianopulus had ostensible authority to represent deposits of single Diners' Club checks as several separate and distinct deposits of cash, the question must be answered in the negative. To establish ostensible authority in an agent, it must be shown that the principal, intentionally or by want of ordinary care, has caused or allowed a third person to believe the agent possesses such authority. (§ 2317, Civ.Code; Hill v. Citizens Nat. Trust & Savings Bank, 9 Cal.2d 172, 176, 69 P.2d 853.) Here it is contended that by virtue of her position as bookkeeper and general office manager, which included the express authority to make deposits in plaintiff's bank account, no limit would impliedly be placed on the manner in which Mrs. Gianopulus made the deposits. While it is true that she did have authority to make deposits, and incidentally to fill out deposit tickets, that authority did not extend to making out deposit tickets which inaccurately reflected the nature of the deposit.

Bank has not shown how the form of deposits accepted in this case were in any way necessary to the performance of Mrs. Gianopulus' duties with Barclay. The officers of Bank who approved the deposits testified that the procedure employed here by Bank employees was irregular and contrary to policies and procedures of Bank. While it is true that Mrs. Gianopulus told the Bank employees that the mode of deposit was 'necessary for bookkeeping purposes,' it is elementary that an agent's authority cannot be delineated by his own representations. (Boren v. State Personnel Board, 37 Cal.2d 634, 643, 234 P.2d 981; Torrance National Bank v. Enesco Fed. Credit Union, 134 Cal.App.2d 316, 322, 285 P.2d 737.) This rule is not changed when the relationship of the parties is bank and depositor (Otis Elevator Co. v. First National Bank, 163 Cal. 31, 46-47, 124 P. 704, 41 L.R.A.,N.S., 529); and where the depositor is a corporation the bank has a legal duty to ascertain that the acts of the agents of the corporation are authorized. (Torrance National Bank v. Enesco Fed. Credit Union, supra, p. 327, 285 P.2d 743, p. 744.) Having accepted the deposits in question, admittedly irregular, without some effort to ascertain the agent's authority beyond her own representations, Bank cannot now absolve itself from liability by asserting an ostensible authority in the agent where in fact no authority was given.

Additionally it may be noted that the issue of ostensible authority is a question of fact. (Henry Cowell Co. v. Santa Cruz Bank, 82 Cal.App. 519, 522, 255 P. 881.) Here the trial court found, upon substantial evidence, that there was no ostensible authority.

Bank asserts that there is no evidence in the record to support a finding that acceptance by Bank of these irregular deposits 'were in violation of its contract of deposit with plaintiff and were in violation of the written instructions given to and accepted by said Bank as set forth aforesaid.'

The relationship of bank and depositor is founded on contract. (Allen v. Bank of America, 58 Cal.App.2d 124, 127, 136 P.2d 345.) The contract entered into when a depositor opens a general checking account at a bank is usually an implied one. (See Glassell Dev. Co. v. Citizens National Bank, 191 Cal. 375, 379, 216 P. 1012, 28 A.L.R. 1427; 7 Am.Jur. 286.) Custom and usage in the business of banking may be part of a contract of deposit if such custom or usage is reasonable and does not contravene any principle of law. (See Davis v. First National...