C.E. Erickson Co. v. Iowa Nat. Bank
| Decision Date | 14 April 1930 |
| Docket Number | 39908 |
| Citation | 230 N.W. 342,211 Iowa 495 |
| Parties | C. E. ERICKSON COMPANY, Appellee, v. IOWA NATIONAL BANK, Appellant |
| Court | Iowa Supreme Court |
REHEARING DENIED DECEMBER 13, 1930.
Appeal from Polk District Court.--O. S. FRANKLIN, Judge.
Action at law by a depositor against the defendant-bank, as a drawee of certain checks, to recover the amount paid thereon and charged to the deposit account of the plaintiff. The alleged ground of recovery is that the person who presented said checks and collected the same had no title thereto, in that the purported indorsement of the payee thereon was a forgery. The answer comprised a general denial. It also set forth the facts and circumstances attending the payment of the checks whereby the plaintiff, through its negligent and wrongful conduct, misled the defendant, and induced its belief in the genuineness of the indorsement, and whereby also, after the payment of the checks, and after the plaintiff had opportunity to know their true character, it negligently failed to advise the defendant that they were spurious whereby the defendant lost the opportunity to protect itself. The answer pleaded also an estoppel, based upon the same negligent acts. At the close of the evidence, the court sustained the plaintiff's motion for a directed verdict for the full amount of all the checks, with interest thereon and judgment was entered accordingly. From such judgment the defendant has appealed.
Reversed.
Nourse & Nourse, for appellant.
Parrish, Cohen, Guthrie, Watters & Halloran, for appellee.
I.
Many of the facts involved herein are recited and considered by us in the opinion in State v. Cordaro, 206 Iowa 347, 218 N.W. 477. Reference may be had thereto for many of the details omitted from our present recital.
The vital question in this case is whether the evidence in the record was sufficient to justify a directed verdict for the plaintiff. The evidence was sufficient to show forgeries of indorsements of checks, which were paid by the defendant and charged to the account of plaintiff; and the showing in that respect was quite conclusive. The plaintiff thereby made a prima-facie case. The plaintiff was not required to prove negligence on the part of the defendant in failing to discover the forgeries, nor would it avail the defendant to show that it exercised due care in that respect. The duty of the defendant, as drawee, to pay the check only to a holder thereof under genuine indorsement, was quite absolute. Whatever degree of care was exercised, the drawee paid the check at its peril, nevertheless. While it is true, however, that no degree of care on its own part will avail the drawee as a defense, it is also true that he may show that he was deceived, misled, or induced to make the payment by the negligent acts of the plaintiff itself, through its authorized agents. This application of the rule of estoppel is recognized in the Negotiable Instruments Law, Section 9483, Code, 1927. It is upon this issue of plaintiff's contribution, through its own misleading acts, to the failure of the defendant to discover the spurious character of the indorsement that our discussion will be directed herein.
The plaintiff was a manufacturer of novelties in the city of Des Moines, and had a pay roll comprising from 119 to 150 persons. The checks involved in this litigation purported on their face to be pay-roll checks. They were, in fact, fictitious checks, fraudulently incorporated in the pay-roll list by Cordaro, one of the officials of the plaintiff.
The official force of the plaintiff-incorporation consisted of Erickson, president; Bridges, treasurer; Rice, office manager; and Cordaro, cost accountant and pay-roll clerk. These officials had their desks all in the same office. Cordaro, who had previously been a bookkeeper for the plaintiff, was promoted in March, 1923, to the position above named. His peculations began in July, 1923, and continued until his detection, in August, 1926. Sometime prior to Cordaro's employment, the office manager had devised and put into effect a system of checks and balances and of accounting, under which the plaintiff was conducting its business, and especially the financial end thereof. Under this system, an account was kept with every workman. To each one was assigned a work card, a clock card, a record card, and a clock number. Every workman was required daily to fill out his work card, showing the number of hours of work for the day and the nature of the work. He was also required to "punch the clock," both on arrival and on leaving his work. From these data the record card was made up in the office. Pay day occurred twice each month. On the 17th day of each month, the pay roll was made up, and checks issued in payment for the first 15 days of the month. On the second day of the following month, payment was similarly made for the last half of the preceding month. The amount due each workman was computed from the work card and from the clock card, as tabulated in the record card. The correctness of a pay check could always be ascertained by reference to the cards, both as to the name of the payee and the amount of pay due. In order to carry out this system, it was apparently necessary to have a special arrangement with the bank on which the checks were to be drawn. For that purpose the plaintiff carried two accounts at the bank. One of them was known as the general account, the other as a pay-roll account. All deposits of funds were made in the general account. When the pay roll was made up, on a semimonthly date, its sum total was ascertained in the plaintiff's office. A check for this sum total was drawn by the treasurer, which was deposited in the pay-roll account. In no other manner were deposits made in the pay-roll account. Each pay-roll check was drawn so as to show on its face the details which connected it with the record cards. The following exhibit is a sufficient illustration of the form of the check:
Each check carried the clock number of the payee of the check. The words "Pay Roll Account" were written in red ink at the right-hand lower corner of each check. Each check was intended to advise the drawee-bank that it was issued in payment of the wages of the payee. Such, in a general way, was the system in vogue in the office, which was extended also to the banking operations.
The evidence tends to show that Cordaro conceived the idea of padding the pay roll to his own benefit. In order to do so he adapted his method to the system in vogue. The duties devolving upon him as pay-roll clerk were to make up the pay roll for the past half month and to prepare the checks for the purpose of payment. The checks were prepared by the use of an addressograph, and the name of each payee appeared in type. The checks thus prepared were presented to Bridges, the treasurer, for signature. For the period of three years, these checks were all signed by Bridges, as presented to him by Cordaro. The method of padding adopted by Cordaro was to draw check and to name therein as payee some former employee, who was not such at the time the check was drawn. Such check purported to show the usual details appearing upon all the pay-roll checks. The copy set forth above is sufficiently illustrative. The payee, Nora Shepard, had been previously an employee. Similar checks had been issued to her while she was an employee. The check thus drawn was spurious in the sense that nothing was due the payee, and she had nothing to do with the check. Nor had she a present clock number 49. In signing the pay-roll checks, Bridges did not distinguish between those that were genuine and those that were spurious. He signed all of them. The spurious checks could have been detected by Bridges by reference to the work cards and the clock cards, but no such reference was made. Upon the signing of the checks by Bridges, they were all delivered to Cordaro for distribution. In such distribution, some of them were cashed by Cordaro, at the request of the payees. The spurious checks were indorsed in blank by him in the name of the payee. Underneath such indorsement he wrote his own name. They were presented by him at the bank for payment. Payment was made. This process was substantially repeated with the successive pay rolls. 72 pay rolls are involved. During the period covered by the investigation, 10,671 pay-roll checks were presented at the bank and paid. Of this number 479 are claimed by plaintiff to be spurious. Every month during that period, the drawee-bank balanced the account of the plaintiff, and returned statements thereof to the plaintiff, together with all the checks cashed. Every statement thus furnished by the bank carried a printed warning in bold type, calling upon the depositor to examine the account and to report errors, if any. It also announced that, unless errors were reported, the account would be deemed correct. The plaintiff apparently acquiesced in this printed warning, and assigned to Cordaro the duty to check the statement of the bank with the records of the corporation. Other than the assigning of this duty to Cordaro, no checking of the bank statement with the records of the plaintiff was made. The defendant introduced evidence to the effect that it carried insurance to cover such losses as are herein indicated, and...
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