Commonwealth v. Globe Indemnity Co.

• Decision Date: 26 June 1936
• Docket Number: 228
• Parties: Commonwealth v. Globe Indemnity Company, Appellant
• Court: Pennsylvania Supreme Court

185 A. 796

323 Pa. 261

Commonwealth v. Globe Indemnity Company, Appellant

No. 228

Supreme Court of Pennsylvania

June 26, 1936

Argued April 29, 1936

Appeal, No. 228, Jan. T., 1936, by defendant, from order of C.P. No. 4, Phila. Co., March T., 1931, No. 1826, in case of Commonwealth v. Globe Indemnity Company. Judgment affirmed.

Proceeding to open judgment entered on bond of surety.

The facts are stated in the opinion of the Supreme Court, and in the opinion of the lower court, reported in 21 D. & C. 610.

Rule to show cause discharged, opinion by FINLETTER, P.J. Defendant surety, appealed.

Error assigned was discharge of rule.

The judgment is affirmed.

Arthur Littleton, with him Alton W. Lick, of Hause, Evans, Storey &amp Lick, Murdoch K. Goodwin and Morgan, Lewis & Bockius, for appellant.

Grover C. Ladner, Deputy Attorney General, with him Charles J. Margiotti, Attorney General, for appellee.

Before SCHAFFER, MAXEY, DREW, LINN, STERN and BARNES, JJ.

OPINION

MR. JUSTICE LINN:

The Commonwealth maintained a checking account with Diamond National Bank of Pittsburgh, hereafter called the bank. The bank gave its bond to the Commonwealth conditioned to disburse the deposit on its order. The Commonwealth also took the bond of the Globe Indemnity Company, hereafter called the surety, conditioned for the performance by the bank of its contract. This bond contained a warrant to confess judgment. Alleging breach of the bank's contract, the Commonwealth entered judgment against the surety and assessed damages in a sum of $28,141.83. The surety petitioned for a rule to show cause why the judgment should not be opened to allow the surety to defend. The rule was granted; the Commonwealth answered; a stipulation of facts was filed by both parties and the court discharged the rule. Subsequently the case was opened to permit the parties to take depositions and for oral argument. Depositions were taken and on the record so amended the learned court below again discharged the rule. This appeal followed.

Controlling facts may be stated briefly. Statutes provide for the condemnation and slaughter of tubercular cattle and the payment of compensation for cattle so taken. ^[1] The department administering the subject prepares papers covering each claim or case; these papers result in action by the auditor general and the state treasurer pursuant to which the treasurer issues the Commonwealth's check to pay the owner of the cattle. A clerk named Thomas, employed in the department charged with assembling these records, fabricated papers showing amounts payable to various persons as owners of cattle when in fact no claims had been presented or liability accrued. He placed these false papers with valid records that were moving from the department of origin to the fiscal officers charged with duty of drawing checks in payment of lawful claims. This was done in such way that, without discovery of the fraud by the auditor general or the state treasurer, checks were drawn as in the case of valid claims, the alleged claimant in each case being named as payee of the check. In the course of business these checks were sent by mail addressed to the payees at the post-office addresses stated in the papers. After the checks had been mailed, Thomas and a confederate went to the post offices to which this mail had been sent, and, presumably, by representing themselves to be the addressees, obtained the checks. By various methods, not now important, they either negotiated them through a third person, or cashed them at banks other than the drawee bank, or had them collected by other banks, first endorsing the name of the payee. This continued for some time without discovery, according to this record, apparently from January 9, 1928, to and including August 20, 1929. On November 6, 1929, the fraud was discovered. The Commonwealth then, in the words of the agreement of facts, "took steps to gather together all of the checks involved herein, a considerable task involving handling thousands upon thousands of checks and securing only those checks which are the subject of this transaction." On November 23d and again on November 27, 1929, all the checks then found to have forged endorsements were presented to the bank with a request that the Commonwealth's account be credited in the sum of those checks theretofore charged against the account. The request was refused.

Section 9 (3) of the Negotiable Instruments Law of 1901, P.L. 194, 196, 56 PS section 14, provides, "The instrument is payable to bearer: . . . 3. When it is payable to the order of a fictitious or nonexisting person, and such fact was known to the person making it so payable. . . ." The payees were fictitious or nonexistent persons but that fact was not known to the Commonwealth's fiscal officers who drew the checks. Within the terms of the statute a name is fictitious when it is feigned or pretended, and a nonexistent person is one who does not exist in the sense that he was not intended to be the payee by the drawer. See Snyder v. Corn Exchange Nat. Bank, 221 Pa. 599, 606 et seq., 70 A. 876. In drawing the check to the order of the payee the Commonwealth was not intending that an imaginary person or a nonexistent person should as the payee take the check. The checks were therefore not payable to bearer.

Section 23, 56 PS section 28, provides: "When a signature is forged or made without the authority of the person whose signature it purports to be, it is wholly inoperative, and no right to retain the instrument, or to give a discharge therefor, or to enforce payment thereof against any party thereto, can be acquired through or under such signature, unless the party against whom it is sought to enforce such right is precluded from setting up the forgery or want of authority." The alleged endorsement of the payee's name was a forgery: Com. v. Bachop, 2 Pa. Superior Ct. 294; Com. v. Smith, 6 S. & R. 568; the drawer had not intended that Thomas should endorse the payee's name. Being a forgery, section 23 declares that "it is wholly inoperative" and confers "no right to retain the instrument, or to give a discharge therefor, or to enforce payment thereof against any party thereto" unless the drawer is estopped. Is the Commonwealth "precluded from setting up the forgery"?

The first proposition presented in appellant's brief is: "The checks when put in circulation by the Commonwealth were not susceptible of a genuine endorsement." The record shows conclusively that that proposition is sound and, as the Commonwealth did not intend to make the checks payable to any identified person regardless of name, or to a fictitious or nonexistent person, appellant's proposition would seem to end its case.

If the checks were not susceptible of endorsement and the bank nevertheless made payment, it could not debit the drawer's account, and, having violated its contract by doing so, the surety became liable. It also follows that if the checks were not susceptible of endorsement, drawing and mailing them to the addressees, as stated above, could not be the proximate cause of the payment made by the bank. The drawer could not have anticipated that, after they were drawn and mailed, Thomas and his confederate would by misrepresentation get them from the mails and that the bank would honor them. The most ordinary precautions usually expected to be taken by a banker (see United Security Life, etc., Co. v. Central Nat. Bank, 185 Pa. 586, 40 A 97, and particularly the report of the master, Richard C. Dale, at page 591 et seq.) asked to cash or credit the checks would, if taken, have at once disclosed that the holder had no title. It is immaterial that the fraud was initiated by an employee of the Commonwealth: United Security Life, etc., Co. v. Central Nat. Bank, supra; Nat. Union Fire Ins. Co. v. Mellon Nat. Bank, 276 Pa. 212, 222, 119 A. 910; Shipman v. Bank, 126 N.Y. 318, 27 N.E. 371. It is also immaterial that before the discovery of the fraud, the Commonwealth knew that its account had been debited by the bank from time to time with the amount of these checks. The bank...