Gresham State Bank v. O & K Const. Co.

• Decision Date: 13 June 1962
• Citation: 231 Or. 106,370 P.2d 726
• Parties: , 100 A.L.R.2d 654, 1 UCC Rep.Serv. 276 GRESHAM STATE BANK, an Oregon corporation, Plaintiff-Respondent, v. O AND K CONSTRUCTION COMPANY, an Oregon corporation, Defendant-Appellant, and Ada Zimmerman, individually and as Executrix of the Estate of Carl Zimmerman, deceased, dba Zimmerman's Twelve Mile Store, Defendant-Respondent and Cross-Appellant.
• Court: Oregon Supreme Court

Page 726

370 P.2d 726

231 Or. 106, 100 A.L.R.2d 654, 1 UCC

Rep.Serv. 276

GRESHAM STATE BANK, an Oregon corporation, Plaintiff-Respondent, v. O AND K CONSTRUCTION COMPANY, an Oregon corporation Defendant-Appellant, and Ada Zimmerman, individually and as Executrix of the Estate of Carl Zimmerman, deceased, dba Zimmerman's Twelve Mile Store, Defendant-Respondent and Cross-Appellant.

Supreme Court of Oregon, Department 1.

Argued and Submitted Feb. 7, 1962.

Decided April 25, 1962.

Opinion Clarified on Denial of Rehearing June 13, 1962.

See 372 P.2d 187.

Clarence Potts, Portland, argued the cause for defendant-appellant. On the briefs were Potts & Davidson, Portland.

Robert L. Burns, Gresham, argued the cause for plaintiff-respondent Gresham State Bank. With him on the brief were McAllister, Burns & Gustafson, Gresham.

Jack L. Hoffman, Portland, argued the cause for defendant-respondent and cross-appellant, Ada Zimmerman. With him on the brief were Pendergrass, Spackman, Bullivant & Wright and Patrick Ford, Portland.

Before ROSSMAN, J., Presiding, and PERRY, O'CONNELL, GOODWIN, and LUSK, JJ.

O'CONNELL, Justice.

This suit was instituted by the Gresham State Bank, interpleading O and K Construction Company and Ada Zimmerman, dba Zimmerman's Twelve Mile Store, to determine the rights of the defendants to $5,622.98 which was tendered into court by plaintiff bank. This sum represented the amount of money credited to defendant Zimmerman's account in the plaintiff bank upon Zimmerman's deposit of various checks made payable to defendant O and K Construction Company. Zimmerman's Store had cashed the checks upon presentment by F. C. McKenna, a bookkeeper employed by the defendant construction company. McKenna was not authorized to endorse or receive the proceeds of the checks. O and K Construction Company filed a cross-complaint alleging that the checks in question did not bear a valid endorsement of the construction company and sought recovery for coversion of the checks.

The trial court entered an order discharging plaintiff of all liability upon the condition that plaintiff pay into court the sum of $5,622.98, which condition plaintiff met. The court also decreed that plaintiff should receive $500 attorneys fees and its costs incurred in the suit, the amount to be paid out of the money tendered into court.

The court then proceeded to determine the claims of the defendant O and K Construction Company and the defendant Zimmerman to the fund deposited in court by plaintiff. The court entered a judgment for defendant Zimmerman. The judgment also provided that plaintiff and defendant Zimmerman recover their costs and disbursements from defendant O and K Construction Company. Defendant Zimmerman filed a statement of disbursements including $549 previously paid to plaintiff out of the interpleaded funds. Upon objection made by defendant O and K Construction Company the court disallowed the claim for $549. From the order disallowing the claim defendant Zimmerman cross-appeals.

On or about December 15, 1956, the O and K Construction Company employed Francis McKenna to work in its office located at Twelve Mile Corner near Gresham, Oregon. McKenna's principal duties were to keep the books of the company and to perform other office duties in connection with the business, including answering the telephone, opening the mail, receiving payments made to the company by check or in cash and to give receipts for such payments, and various other duties which we shall describe in more detail below. Although McKenna was required to be at the office of the company during the regular working hours from Monday to Saturday, he was permitted to carry on his own private bookkeeping service for others. Osburn and Kniefel, the officers of the company, were seldom present at the office, their work requiring them to be elsewhere in connection with the operation of the contracting business; consequently they exercised very little supervision over the details of McKenna's work for the company.

From time to time McKenna, in the course of his employment, received checks made payable to the construction company. He was authorized to deposit these checks in the First National Bank of Gresham, which was located about a mile from the company's office. To facilitate the making of these deposits McKenna was furnished a rubber stamp bearing the inscription 'For deposit only at the First National Bank.' The office supplies also included another rubber stamp with the inscription 'O & K Construction Co., Route 1, Gresham, Oregon,' which was intended to be used in marking statements, invoices, sales books and other similar items.

During the years 1957, 1958 and 1959 McKenna endorsed 30 checks which had been made payable to the company and cashed them at Zimmerman's Twelve Mile Store, which was also located at Twelve Mile Corner about one half block from the office of the O and K Construction Company. The unauthorized endorsement was made by using the stamp 'O & K Construction Co., Route 1, Gresham, Oregon' under which McKenna signed his name, followed by the designation 'Office Manager' in some instances and 'Bkpr' in others. These checks were cashed at Zimmerman's Store. The store maintained a special check cashing counter at which was maintained a 'Regis-Scope' machine by which the check and the person cashing it could be photographed. No inquiry concerning McKenna's right to endorse and cash the checks was made of the officers of the O and K Construction Company. After the checks were cashed, the Zimmerman Store endorsed them and deposited them to its account at the plaintiff bank. The checks were sent through the regular banking channels and paid by the drawee banks. In May, 1959, McKenna's defalcations were discovered, whereupon the O and K Construction Company obtained the cancelled checks from the various makers and made a formal demand upon the drawee banks for the face amount of the checks. The drawee banks in turn made demand upon the plaintiff bank. As these demands were made upon the plaintiff bank, it withdrew from the account of Zimmerman's Store an amount equal to the check and placed it in a suspense account. After the last check had been presented the bank filed this suit in interpleader.

The defendant O and K Construction Company relies upon the rule that one who makes payment upon an unauthorized endorsement of the payee's name is liable to the payee for conversion.

Defendant Zimmerman contends that the loss falls upon the defendant construction company on the basis of any one of the following grounds: (1) that McKenna had implied or apparent authority to endorse the checks and to present them to Zimmerman's for payment on behalf of the construction company; (2) the construction company is precluded from recovery by its negligence; (3) where one of two innocent parties must suffer the loss should fall upon the one whose acts made the loss possible.

The third contention adds nothing to the first two. There is no legal principle which places the loss upon one of two innocent parties merely because one acted and the other did not. The law makes the choice upon the basis of fault or some other consideration warranting the preference. In the present case we must decide upon some such rational ground which of the two defendants should be favored.

We begin with the well established rule that one who obtains possession of a check through the unauthorized endorsement of the payee's name acquires no title to it and is liable to the payee for the amount of the check unless the payee is precluded from setting up the want of authority. ¹

The evidence is clear that McKenna had neither the express nor implied authority to endorse the checks other than for deposit. Defendant Zimmerman contends that if there was not an implied authority the facts disclose that McKenna was clothed with apparent authority. To support this contention Zimmerman points to various instances where, it is alleged, the conduct of Osburn and Kniefel constituted indicia of authority in McKenna to make the endorsements.

It is argued that in supplying McKenna with a rubber stamp bearing the name and address of the construction company, he was provided with the means of endorsing paper and thus representing that he had authority to do so. This does not constitute the creation of an appearance of authority. Whatever appearance of authority arose from the use of the stamp was not created by the O and K Construction Company; it was created by McKenna himself. Certainly the mere furnishing of a name and address stamp by the company for use in its office did not create an ostensible authority to endorse checks and receive payment for them. Stamps of this character are used in most offices; the supplying of them signals nothing with respect to the authority of those employed to use them. ² Where there are other facts from which third persons might reasonably infer that authority was granted the principal may be held liable. ³

Other facts are relied upon by Zimmerman as a basis for the alleged appearance of authority. It is pointed out that McKenna had authority to receive checks and cash in payment of accounts owing to the construction company; that he was in charge of the office without supervision approximately 85% of the time; that he dealt with people who came to the office; that he used the company's charge account at Zimmerman's Store; that he was permitted to use money out of the petty cash fund; that Osburn and Kniefel were frequently in Zimmerman's Store with McKenna; that Zimmerman's employees who cashed the checks in question relied upon the fact that McKenna was the office manager of the construction company. We fail to see how these and the other facts recited by Zimmerman create an appearance of authority to endorse checks and to receive the cash for them. The mere fact that an employee has charge of a company's office does not entitle third persons...