Fidelity & Cas. Co. of New York v. First Nat. Bank & Trust Co. of Fargo
| Decision Date | 23 December 1941 |
| Docket Number | 6771. |
| Citation | 1 N.W.2d 401,71 N.D. 415 |
| Court | North Dakota Supreme Court |
Syllabus by the Court.
1. Ostensible authority to do an act may be created by conduct of the principal which reasonably interpreted causes a third person to believe that the principal consents to have the act done on his behalf by the person purporting to act for him.
2. Section 6908, Comp.Laws N.D.1913, places signatures made without authority in the same category as forged signatures for the purpose of determining the rights of parties claiming through or under such signatures.
3. A bank upon which a check is drawn, which has been cashed by another bank upon a forged indorsement of the payee's name, may in the absence of negligence or notice recover from the collecting bank the money paid on the check in the due course of business.
4. A check indorsed by an agent with ostensible authority may not be considered as bearing a forged indorsement or an indorsement made without authority.
5. An indorsement of a check made by an agent with ostensible authority passes title to an innocent holder who thus becomes a holder in due course.
6. A drawee bank having paid a check to a holder in due course may not recover the proceeds of the check from such holder upon the ground that the indorsement by which title to the check passed to the holder was made upon ostensible authority and not the actual or implied authority of an agent of the payee.
7. The drawer of a check is liable thereon to a holder in due course who has received the check by virtue of an indorsement depending for its validity upon the ostensible authority of an agent of the payee, and such drawer may not escape liability upon the ground that such agent had no actual or implied authority to make the indorsement.
Philip B. Vogel, of Fargo, for appellant.
Conmy & Conmy, of Fargo, for respondent First Nat Bank & Trust Co. of Fargo.
Francis Murphy, of Fargo, for respondent McVille State Bank.
The complaint in this case sets out ten causes of action each of which is on a check issued by the Investment Corporation of Fargo payable to the Gulbro Implement and Hardware Company. Six of the checks were drawn upon the Merchants National Bank and Trust Company. Four of them were drawn upon the Dakota National Bank. Both are banking institutions located in the City of Fargo. These checks were issued at various times from September 15, 1938, to July 20, 1939. All were cashed by the McVille State Bank within a few days after issuance. The Mcville State Bank indorsed each check in the usual course of banking practice and forwarded it to the First National Bank its correspondent in Fargo. The First National Bank indorsed each check and transmitted it for payment through the Fargo Clearing House to the bank upon which it was drawn being the Dakota National Bank or Merchants National Bank and Trust Company as the case might be. The drawee banks paid the First National for each check which thereupon credited the McVille State Bank with the payment thus received.
The Gulbro Implement and Hardware Company was a trade-name of A. L Gulbro. On August 17, 1939, the Investment Corporation, having received a letter from A. L. Gulbro stating that the transactions which resulted in the issuance of the checks were fraudulent and fictitious, made demand upon the drawee banks for a restoration of credit and returned the checks to the banks upon which they were drawn. The drawee banks denied liability but made demand upon the First National Bank as indorser.
The plaintiff, the Fidelity and Casualty Company of New York, had insured the Investment Corporation against certain losses and because of its contract of insurance paid the amounts of these checks less certain salvage. The amount paid to the Merchants National Bank and Trust Company was $1,108.43. The payment to the Dakota National Bank was $937.54. The accounts of the Investment Corporation were credited with these respective amounts. Assignments were taken by the plaintiff from these banks and from the Investment Corporation. In its complaint, the plaintiff asks judgment against the First National Bank and Trust Company of Fargo for the total amount that was paid to the drawee banks. The McVille State Bank having cashed the checks in the first instance and being a prior indorser intervened in the action. Both the defendant and the intervenor entered general denials and affirmatively set out that the loss was caused or contributed to by the negligence of the Investment Corporation, assignor of the plaintiff. This suit in substance narrows down to an action against the McVille State Bank, the bank that cashed and indorsed the checks.
The case was tried to the court without a jury and resulted in a judgment for dismissal of the action. Further facts pertinent to the decision of this controversy are these. During the time involved in this case, A. L. Gulbro was a sole trader who operated chiefly as The Gulbro Implement and Hardware Company although at times he also used the name Gulbro Motor Company. He dealt in hardware, farm implements and automobiles. This business was located in the town of Pekin. This town consisted of about 300 people and had no bank. For a time, A. L. Gulbro also operated an unincorporated concern known as the Pekin Exchange at which checks could be cashed for the convenience of local residents. The Investment Corporation was a financing company operating through the medium of conditional sales contracts. It started handling contracts for Gulbro in 1937 and continued to do so until the present difficulty came to light. A. L. Gulbro maintained a checking account with the Farmers and Merchants State Bank located at Tolna, North Dakota, about seven miles west of Pekin. He maintained no checking account with the bank at McVille located about nine miles east of Pekin.
He received $270, the amount of the check, in cash. The other nine checks involved in this lawsuit were issued by the Investment Corporation upon other fictitious contracts of a similar nature prepared and sent in by Elroy Gulbro. In each instance, he intercepted the checks and cashed them himself or caused them to be cashed for him by innocent parties. He obtained cash on all checks except one. For the proceeds of one check he received a draft.
A. L. Gulbro did not discover his son's fraudulent manipulations until about August 11, 1939, when he immediately advised the Investment Corporation by letter. The relationship of Elroy Gulbro to the various business enterprises of his father is the basis of any determination of liability of the McVille State Bank. All of the checks bear an indorsement by the son similar to the one set out above. Sometimes his name is followed by "mgr." Both the father and son testified as witnesses for the plaintiff. According to the father, he knew nothing of the transactions in question and, of course, never authorized his son to make the indorsements that appear on the checks. On direct examination he stated that no one inquired about the son's authority to cash these checks. A. L. Gulbro's bookkeeper corroborated most of his testimony. The father testified at considerable length concerning the connection of Elroy with his business. Elroy started working when he was quite small and in later years became active in assisting his father in operating the business. The son made collections and sales. He was an active intelligent boy and as he became more experienced he was entrusted with more details and authority. The bookkeeper had general charge of all money coming in, the writing of checks and generally making the disbursements necessary in the course of business. In some instances, Elroy Gulbro was permitted to indorse checks with the name of the Gulbro Implement and Hardware Company by himself and deposit these checks. For a short time he was permitted to draw checks on the bank account in connection with the automobile business.
A. L. Gulbro operated a currency exchange during 1934, 1935 and 1936. For about a year, Elroy was manager of this exchange. At other times, the bookkeeper acted as manager. The son usually signed and indorsed checks "Pekin Exchange-By: E. O Gulbro". During the son's management of the exchange he obtained currency a number of times from the McVille State Bank. Occasionally he obtained this currency by using Gulbro Implement and Hardware Company or Gulbro Motor Company checks. The father was aware that the son indorsed and cashed various small checks using one or the other of the father's trade-names. When asked whether the cashier of the McVille State Bank had ever...
To continue reading
Request your trial