Beacon Chocolate Co. v. Bank of Montreal

• Decision Date: 18 September 1926
• Docket Number: No. 3659.,3659.
• Citation: 14 F.2d 599
• Parties: BEACON CHOCOLATE CO. v. BANK OF MONTREAL.
• Court: U.S. Court of Appeals — Seventh Circuit

14 F.2d 599 (1926)

BEACON CHOCOLATE CO. v. BANK OF MONTREAL.

No. 3659.

Circuit Court of Appeals, Seventh Circuit.

June 15, 1926.

Rehearing Denied September 18, 1926.

Mitchell D. Follansbee and Clyde E. Shorey, both of Chicago, Ill., for plaintiff in error.

Louis L. Dent, of Chicago, Ill., for defendant in error.

Before ALSCHULER, EVANS, and ANDERSON, Circuit Judges.

EVAN A. EVANS, Circuit Judge.

This writ of error presents a question of the asserted liability of defendant bank to a depositor (plaintiff) growing out of an embezzlement by an employee of such depositor.

Plaintiff, a Boston corporation, started a branch sales office at Chicago, and opened an account with defendant bank, in 1919, depositing its customers' checks therein. During the period covering its business transactions with defendant, plaintiff had three different sales managers in the Chicago office. The last one, H., deposited some of the customers' checks in his account as manager, and misappropriated the funds.

The bank, and we might add, the plaintiff, were interested in two accounts with which we are concerned.

One account stood in the name of the plaintiff. All the receipts of the Chicago branch — all the checks of customers of this branch — were deposited in this account. About a year before the misappropriation of funds by H., plaintiff furnished its manager with a rubber stamp which he was instructed to use in making the deposits, and which was used thereafter (save in reference to the few checks herein involved). The stamp contained these words: "For Deposit. The Bank of Montreal. Beacon Chocolate Co., Boston, Mass."

Plaintiff early notified defendant that no check should be drawn on this account save when signed by W. A. Carl, president, James R. Nicholson, treasurer, or Windsor L. Taliaferro, secretary, all of Boston. The signature cards furnished defendant bore the signatures of these three men. When a deposit was made in this account, a duplicate slip was made out by defendant and forwarded to the plaintiff at Boston.

The second account was in the name of "H., Manager," at the time of the default. The first manager carried the account in his individual name. The second carried it in his individual name, "B.," for a short period, then changed it to that of "B., Manager." "H." opened this account in his own name, but on January 31, 1921, he wrote the bank,

"Bank of Montreal, 29 South La Salle Street, Chicago — Gentlemen: Beginning tomorrow, February 1st, I am going to sign my checks `F. A. H., Manager,' and will ask you to so change your records so that no checks will be honored except those signed accordingly.

"Yours very truly, F. A. H."

Thereafter, the account was carried in the name of "H., Manager."

It was the practice of plaintiff to send a check each week to the Chicago manager to cover the expenses of the Chicago office, in payment of salaries of salesmen, stenographer, rent, etc. The Chicago manager would deposit this check in the last-mentioned account, and then pay the expenses, salaries, etc., therefrom.

Beginning in the latter part of January, 1921, and continuing for a short period, H. indorsed, generally, eleven of the customers' checks, all payable to plaintiff, aggregating about $5,000, and deposited them in the account of "H., Manager," and shortly thereafter withdrew and used the moneys thus deposited.

Whether defendant can justify its course in depositing these checks to the account of "H., Manager," under the circumstances, is the decisive issue in the case. Or rather, to state it differently, upon these facts, has plaintiff established a liability against the bank?

It may be conceded for the purpose of the argument that a local sales manager has authority to collect, and, for the purposes of collecting, to indorse customers' checks given in payment of goods and merchandise sold through such agency. Likewise, it must be conceded that the bank's authority to accept such indorsements and cash said checks is dependent upon the express or implied authority of such agent to indorse his principal's name. For in the absence of any authority the bank would not be justified in paying to a third party moneys which by the terms of the check were payable to the plaintiff. Hamlin's Wizard Oil Co. v. U. S. Express Co., 265 Ill. 156, 106 N. E. 623; Independent Oil Men's Ass'n v. Bank, 311 Ill. 278, 142 N. E. 458; Foster v. Graf, 287 Ill. 559, 122 N. E. 845.

Did the bank have notice of the limitation on the manager's authority to indorse the company name on its checks?

The answer to this question involves an examination of the evidence rather than a study of the decisions. As we construe the issue, there was no disputed question of fact for a jury to pass upon, and the trial court, the jury having been waived, very properly and we may add, very commendably, preserved all the questions here presented.

The defendant's proof lies solely in the fact that H. was the Chicago sales manager. It has been held in Illinois that no such implied authority to indorse the checks of a company arises...