Home Indemnity Co. of New York v. State Bank of Fort Dodge
| Decision Date | 06 April 1943 |
| Docket Number | 45977. |
| Citation | 8 N.W.2d 757,233 Iowa 103 |
| Parties | HOME INDEMNITY CO. OF NEW YORK v. STATE BANK OF FORT DODGE. HOME INDEMNITY CO. OF NEW YORK et al. v. SAME. |
| Court | Iowa Supreme Court |
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Horace J. Melton, of Fort Dodge, for appellants.
D. M. Kelleher, of Fort Dodge, for appellee.
The Brady Co., with its headquarters at Fort Dodge, Iowa, conducts an extensive motor freight business. The policy of the Indemnity Co. insured the Brady Co. and also the Fort Dodge National Bank, in which the former carried its checking account, against which all checks in controversy were drawn, against losses sustained by either because "of forgery of alteration of, on, or in any check, *** made or drawn by, or drawn upon or as a direction to the Insured (Brady Co.), *** including any check *** made or drawn in the name of the Insured, payable to a fictitious payee and indorsed in the name of such fictitious payee ***." The policy provided that losses sustained by the insured should be entitled to priority over losses sustained by the bank, and that losses to either should be paid directly to the insured. The bond covered checks written prior to July 1, 1940.
The other plaintiff, the Bonding Co., carried a policy, effective from June 27, 1940, insuring the Brady Co. against any loss of money caused by the dishonesty of any employee through forgery, larceny, etc. Each policy provided that, upon indemnification, the insured would render such assistance, by assignment or otherwise, to secure reimbursement to the insurers.
On January 25, 1941, the Brady Co. executed a written assignment to the Indemnity Co. transferring to it "all the right, title and interest of the said Brady *** Company in and to, all and singular, the checks drawn by the undersigned *** on the Fort Dodge National Bank *** set forth and described in the attached list," for which claim was made by the insured, on September 24, 1940. This claim listed 87 checks, totaling $1,318.51, averaging about $15 each, and gave the numbers, dates, payees, and amounts of the checks. On the same date, the Brady Co. executed a like assignment to the plaintiffs covering a list of 27 checks totaling $740.16, included in the claim of the insured against the Bonding Co. of October 14, 1940. Of the checks covered by these assignments only 51 thereof are involved in this litigation, the first one of which is dated February 13, 1940, and the last one July 31, 1940.
Each year claims involving damages for loss or injury to goods, delay in delivery, overcharges, etc., approximating $39,000, were filed against the Brady Co. Attention to these claims required a separate department with a manager, investigators, and various assistants. Some time late in 1939, Brady Co. advertised for a clerk. S. B. Noland contacted the company, and gave acceptable references. He was a paroled convict, who had served a sentence for forgery. John J. Brady, president of the Company, signed the employment papers with the Board of Parole. While it was stipulated at the beginning of the trial that the company and its president knew that the crime of which Noland had been convicted was forgery, Brady testified that he had not known what Noland's offense was, and that he had never attended to the details of hiring him. For about the first sixty days of his employment, Noland worked in the pay-roll department in connection with social security matters. Sometime in January, 1940, he was placed in charge of the claim department.
It was the practice of the company, when any claim was made, to give it a consecutive number, and make a file for it and for all papers, such as bills of lading, invoices, reports of investigators, correspondence, etc., in connection with the claim, all of which were clipped together. The top sheet of the file was a printed blank form, supplied by the company, entitled, at the top, "Disposition of Claim." The blanks below were filled out in writing with the claimant's name, claim number, amount, date of filing, date of approval, and other data. At the bottom of this top sheet was a blank for the initials of the company representative who approved the claim. When the claim was paid, that fact, with the date and check number was rubber-stamped on the face of the sheet. The claim file was then placed according to its consecutive number, in a file cabinet. A registry book was kept in the office of the department, in which every claim when numbered and filed, was recorded so as to show, in substance, the matters noted on the "disposition-of-claim sheet." When a claim was paid, that fact was noted on its registry sheet, showing date and amount of payment and check number. Irene E. Lamuth was cashier of the company and had been for ten years. She had two or three assistants. Only she, and an assistant in her absence, and the president, were authorized to sign the company checks.
When a claim had been approved, one of the assistants of the manager of the claim department, would take the entire original file to the cashier's office. Usually a number of these approved claim files were taken to the cashier at one time and left. One of the cashier's assistants would type the checks put in the amounts by protectograph, and when the checks were signed by the cashier, an assistant would return the files with the checks to the claim department, for delivery of the checks to the claimants.
It was the rule of the company that the manager of the claim department was authorized to approve all claims of $20 or less, and procure checks therefor, and make remittances, without securing the further approval of any of his superiors.
The plan used by Noland to defraud the company was to procure from the paid-claim files one of the original files of a claim which had been rejected, or settled and paid, and stored away some months or a year or more previous. He would remove the top, or "disposition-of-claim," sheet, which had the stamp of payment thereon, and would substitute a new top sheet, similar in all respects to the one removed, but lacking the paid stamp, and usually with the amount of the claim changed, and place his initialed O. K. thereon. He would then send this file with other legitimate claim files to the cashier, and when the files with the checks would be returned to his department, he would take the check issued to the payee named in the spurious claim, forge the endorsement of the payee, negotiate the check, and take the proceeds. Almost always he used the name of a claimant whose claim had been allowed or rejected, but a few times the name used was apparently fictitious. The papers in the file below the top sheet were usually not tampered except to add or alter a figure in the amount of the claim to conform to the substituted top sheet. There were, of course, a great many legitimate claims allowed and paid. The files and the registry book of current claims were at times referred to by the cashier or officers of the company in the disposition of claims. An examination of the paid-claim files, or the registry record thereof, which files were used by Noland to procure the checks which he stole, would have disclosed the fraudulent plan. The cashier was not required to investigate the verity of any claim presented to her by the claim department which bore the intitialed O. K. of Noland or of certain designated officers. This was the order which Mr. Brady gave to her. Most of these spurious top sheets had the O. K. of Noland, some, that of a higher officer, and some hand both. The cashier often consulted with her superiors and others about claims. About every six months certified public accountants audited the books of the company. Noland left the employ of the company apparently early in August, 1940. The public accountants came shortly afterward, but the record does not disclose that they detected the fraud of Noland. The first intimation of his misdeeds came when a claimant complained sometime in September, 1940, because his claim had not been paid. He was told that his claim had been paid and a cancelled check payable to him, dated July 5, 1940, with his name endorsed thereon, was shown to him. It is one of the checks involved herein, and is the only check for a valid claim. Being convinced that the claimant had never received the check nor endorsed it, another check was issued to him on September 30, 1940.
The checks involved herein all came to the defendant. It was stipulated: that each of the payees, who were known, would testify that he never received the check or endorsed it: that each person endorsing the check after the purported endorsement of the payee, acted in good faith in taking the check, and paid full value therefor; that the holder presented the check to the defendant who took them for collection in the customary manner in which checks drawn upon the Fort Dodge National Bank are received from defendant's depositors; that defendant's tellers and bookkeepers had no knowledge that the checks were issued for spurious claims and to spurious payees; and that none of defendant's officers had any transactions with Noland, or knew him or his criminal record.
Noland never signed any of the checks. He had no authority to issue or sign checks. He never endorsed his name on any of the checks.
When the cancelled checks with the bank statement were returned to the company by the drawee bank, it was the duty of the cashier and her assistants to examine them for errors and to verify the amounts, and the signature of the maker or signer. Neither Noland nor any other employee or officer of the company took any part in this checking of the...
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