Hartford Acc. & Indem. Co. v. Bear Butte Valley Bank
| Decision Date | 03 December 1934 |
| Docket Number | 7715. |
| Citation | 257 N.W. 642,63 S.D. 262 |
| Parties | HARTFORD ACCIDENT & INDEMNITY CO. v. BEAR BUTTE VALLEY BANK. |
| Court | South Dakota Supreme Court |
Appeal from Circuit Court, Meade County; James McNenny, Judge.
Action by the Hartford Accident & Indemnity Company against the Bear Butte Valley Bank, a corporation. From a judgment in favor of the plaintiff, and from an order denying its motion for a new trial, the plaintiff appeals.
Judgment and order affirmed.
H. F Fellows, of Rapid City, for appellant.
Atwater & Helm, of Sturgis, for respondent.
The Montana-Dakota Power Company is a public utilities company serving a large number of towns in Western South Dakota with natural gas, and maintains its principal office in the territory at Rapid City. The company maintained an office in Sturgis, which town it served, and one W. C. Baker was the manager of the Sturgis office. In the Sturgis office gas equipment was sold at retail, and all bills incurred in the consumption of gas and purchases made in the vicinity of Sturgis were paid at the Sturgis office. Baker was in general charge of this office, and generally conducted the business of the company in and about Sturgis. The company permitted Baker to accept in payment of company accounts either the check of the customer paying the account or cash. The company furnished Baker with a rubber stamp for the purpose of indorsing checks accepted by Baker in payment of company accounts, which rubber stamp had thereon the words "Montana-Dakota Power Company, W. C. Baker, Manager." It will be noted that this rubber stamp furnished Baker by the company in no manner purported to qualify the indorsement, but the wording thereon constituted an unqualified indorsement when stamped on the check. Baker had been in charge of the Sturgis office for something more than a year prior to the time in question, and, prior to Baker's coming to Sturgis, there had been other managers of that office acting in the same capacity as Baker. Baker and all other managers of the Sturgis office had always used the same general form of indorsement in indorsing checks received in payment of company accounts (sometimes using the rubber stamp, other times pen and ink), and many of these checks were drawn on the defendant bank and honored and paid by that bank. The defendant bank also knew of Baker's authority to accept cash in the payment of company accounts. The defendant bank, however, was not the bank in which the company carried its account at Sturgis. This action involves three different checks, two of which were made payable to the Montana-Dakota Power Company, and the third to the Black Hills Utility Company, under which name the Montana-Dakota Power Company was at one time operating. The checks were indorsed by Baker with an unqualified indorsement. Whether he used the rubber stamp on these particular checks does not appear, but, in any event, the indorsement was in the same form. These three checks were drawn on the defendant bank, there presented by Baker, and the money thereon paid to Baker, which money Baker embezzled. The plaintiff indemnity company paid the losses suffered by the power company on account of this embezzlement, and upon the assignment of the claim to it the indemnity company brought this action against the defendant bank.
It is the contention of plaintiff that Baker was without authority to indorse these three checks and receive the cash therefor, and that the bank, upon its refusal to surrender them to the plaintiff, became liable as a converter thereof. Baker had no written authority, and the testimony of the officers of the MontanaDakota Power Company disclosed that his only authority was to indorse the checks for the purpose of having the proceeds deposited to the company account in the bank at Sturgis in which this account was kept. The case was tried to the court, findings of fact, conclusions of law, and judgment were in favor of the defendant, and the plaintiff appeals from the judgment and order entered denying its motion for a new trial.
In view of the decision of this court in the case of Dakota Radio Apparatus Company v. First National Bank of Rapid City, 60 S.D. 251, 244 N.W. 351, we deem it advisable to point out that this action is not one based upon the checks as such and their alleged acceptance by the drawee bank, but is rather an action seeking to recover for an alleged conversion of the checks by the bank. The case just above referred to was a case involving a fact situation in some respects similar to the fact situation here presented. In that case the drawee bank cashed a check and charged it to the account of the drawer upon the unauthorized indorsement of the agent of the payee. The case was submitted and argued in this court upon the theory that the bank, upon which the check was drawn, accepted the check by paying and stamping it paid and charging it to the drawer's account, and that by so doing it became liable upon the check as such. This court followed the great weight of authority and held that the payment of a check upon a forged or unauthorized indorsement and stamping it paid did not constitute an acceptance, and, since the action was argued and submitted upon that theory, we denied a recovery. However, we are of the opinion that, even though the payee named in a check which has been paid upon a forged or unauthorized indorsement has no remedy against the drawee upon a contract on the theory that the drawee has accepted the check, nevertheless he has a remedy in tort. This conclusion we believe to be sound, for the reason that an unauthorized indorsement is in fact a nullity, and, when a bank takes a check upon such unauthorized indorsement, it takes it without the consent of the payee therein named, and, when it continues to hold this check and exercise control of it against the wishes and demands of the payee, it becomes a converter thereof as against the rightful owner who is the payee named in the instrument. This doctrine seems to be in accord with the weight of authority. See Bentley, Murray & Co. v. LaSalle St. Savings Bank, 197 Ill.App. 322; Burstein v. People's Trust Co., 143 A.D. 165, 127 N.Y.S. 1092; Morris & Bailey Steel Co. v. Bank of Pittsburgh, 277 Pa. 81, 120 A. 698; Kentucky Title Savings Bank & Trust Co. v. Dunavan, 205 Ky. 801, 266 S.W. 667; Louisville & N. R. R. Co. v. Citizens' & Peoples' Nat. Bank, 74 Fla. 385, 77 So. 104, L. R. A. 1918C, 610; 25 Mich. Law Rev. 454; 31 Mich. Law Rev. 565; 38 Harv. Law Rev. 857.
We come now to the question of the authority of Baker. Section 1723, R. C. 1919, provides:
The above provision of our law was adopted as a part of our Uniform Negotiable Instruments Act. However, it differs materially from the provision contained in the general Uniform Negotiable Instruments Law. Section 19 of the general law, which our section 1723, R. C. 1919, supplants, reads as follows:
Because of the wording of our statute, this court has held that one purchasing notes from an agent not authorized in writing to indorse the notes is not a holder in due course. State Bank of Alcester v. Weeks, 45 S.D. 639, 189 N.W. 941; on rehearing, Id., 46 S.D. 93, 190 N.W. 806; Security Holding Company v. Christensen, 53 S.D. 37, 219 N.W 949, 60 A. L. R. 1173; First National Bank v. Montgomery, 47 S.D. 97, 196 N.W. 95. In the case of Citizens' Bank & Trust Company v. McGaa, 48 S.D. 45, 201 N.W. 873, this court held that, in an action by the holder indorsee of the note against the indorser, wherein it appeared that the indorser's signature had been placed thereon by an agent, it was the indorsee's duty to ascertain the extent of the authority of this agent, and, having failed to exercise this precaution, the indorsee assumed the risk of the lack of authority in the agent. However, in that case it was pointed out that the record did not support plaintiff's contention that the principal whose name the agent indorsed was estopped from asserting the lack of authority in the agent. In the case of Commercial State Bank v. Iverson, 49 S.D. 466, 207 N.W. 471, it was held that the above-quoted section 1723, R. C. 1919, or the decision of State Bank of Alcester v. Weeks, supra, had no application to executive officers of a corporation. It will be noted that none of the above decisions go to the extent of holding that the principal of an agent who indorses commercial paper might not be estopped by its acts from denying the authority of the agent to indorse the paper in the manner in which he did. In this case the defendant pleaded that the acts of Baker's principal estopped it from asserting that Baker had no authority to place thereon the unqualified indorsement of the principal and receive the payment of the checks. We believe the record in this case is sufficient upon which to base an estoppel. There has always been...
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