Kansas City Title & Trust Co. v. Fourth Nat. Bank in Wichita, Kan.

• Decision Date: 07 May 1932
• Docket Number: 30505.
• Citation: 10 P.2d 896,135 Kan. 414
• Parties: KANSAS CITY TITLE & TRUST CO. v. FOURTH NAT. BANK IN WICHITA, KAN.
• Court: Kansas Supreme Court

10 P.2d 896

135 Kan. 414

KANSAS CITY TITLE & TRUST CO. v. FOURTH NAT. BANK IN WICHITA, KAN.

No. 30505.

Supreme Court of Kansas

May 7, 1932

Syllabus by the Court.

Where title insurer settled with loan company for loss on fraudulent loans, title insurer, under conventional subrogation and assignment by loan company of claims against bank which paid out money on forged payee indorsements, held entitled to maintain action against bank.

Where title insurer settled with loan company for loss on fraudulent loans and mortgages, and loan company assigned claims against bank which paid out money on forged payee indorsements, title insurer held not gratuitous assignee so as to preclude it from maintaining causes of action as against bank.

Failure of loan company, drawer of checks, to deliver or tender forged notes and mortgages held not to constitute ratification of payment by bank of drawer's checks on forged indorsements (Rev. St. 1923, 52--223).

Bank which pays depositor's funds upon checks bearing forged payee indorsements has burden to prove facts sufficient to avoid liability to depositor.

Bank's payment of depositor's check upon forged indorsement is at peril of bank.

Fact that bank in paying depositor's check upon forged indorsement was not guilty of actual negligence does not relieve it from liability.

Payment of depositor's check on forged payee indorsement held proximate cause of depositor's loss.

Where title insurer sustained loss as result of fraudulent notes and mortgages covering loans, and bank paid loan company's checks on forged payee indorsements, facts and circumstances held to disclose no countervailing equities in bank so as to preclude title insurer from maintaining action against bank based on conventional subrogation and assignment of loan company's claims.

Rendition of monthly statements by bank to depositor, showing status of account and deductions therefrom by payment of checks, held in legal effect "account stated," and notice of bank's denial of any greater liability.

Causes of action against bank based on payment of depositor's check on forged payee indorsements, as to checks deducted from depositor's account and shown as deduction on monthly statements more than three years prior to commencement of action, held barred by limitation (Rev. St 1923, 60--306(2).

1. A loan company drew checks on its deposit account in defendant bank in favor of payees named in forged notes secured by fraudulent mortgages, and obtained insurance policies from a title company guaranteeing the titles to the mortgaged properties. The checks were cashed by various banks on forged indorsements of the names of the payees, and eventually paid by defendant. The canceled checks were returned along with the regular monthly statement the bank was accustomed to make to the loan company showing the state of its account. When the loan company discovered the fraud, it called upon the title company to protect it on its insured mortgage securities, and called on the bank for reimbursement for the unauthorized deductions from its bank deposit. The title company and the loan company settled the rights and obligations existing between them under the policies insuring the titles, and the title company took an assignment of the loan company's claims against the bank. Held:

(a) by conventional subrogation and by assignment of the loan company's claims against the bank, the title company could maintain an action against the bank.

(b) The title company was not a gratuitous assignee; it owed no duty to the bank under its insurance policies; and no rule of law or equity disqualified it to maintain the causes of action assigned to it by the loan company.

(c) The failure of the loan company to deliver or tender the forged notes and mortgages to the bank did not constitute ratification of the bank's payment of the loan company's checks on forged indorsements.

(d) Error assigned on placing the burden of proof on the bank that the checks were paid according to directions of the loan company considered and not sustained.

(e) The payment of a check by a bank upon a forged indorsement is at the peril of the bank, and the fact that it was not guilty of actual negligence did not relieve it from liability.

(f) Defendant's argument that the payment of the checks on forged indorsements was not the proximate cause of the depositor's loss considered and not sustained.

(g) In the circumstances outlined above, no countervailing equities of the bank prevented the title company from maintaining the action.

2. In the circumstances outlined in the opinion, the rendition of monthly statements by the bank to the loan company, showing the status of its account and the deductions made therefrom by payment of the checks and their return, was in legal effect an account stated, and notice of the bank's denial of any greater liability; and such of the causes of action as were based on deductions from the depositor's account made more than three years prior to the commencement of this action were barred by the statute of limitations.

Appeal from District Court, Sedgwick County, Division No. 1; J. Everett Alexander, Judge.

Action by the Kansas City Title & Trust Company against the Fourth National Bank in Wichita. Judgment for the plaintiff, and the defendant appeals.

Affirmed in part and reversed in part, with directions.

Chas. G. Yankey, John L. Gleason, Kenneth K. Cox, Harvey C. Osborne, John G. Sears, Jr., and Morris H. Cundiff, all of Wichita (Henry L. McCune, Robert B. Caldwell, and Blatchford Downing, all of Kansas City, Mo., of counsel), for appellant.

W. A. Ayres, Austin M. Cowan, C. A. McCorkle, J. D. Fair, and W. A. Kahrs, all of Wichita (Arthur N. Adams and Arthur N. Adams, Jr., both of Kansas City, Mo., of counsel), for appellee.

DAWSON J.

This was an action to recover a large sum of money which the defendant bank had paid on checks bearing forged indorsements, and which it had charged against the checking account of the drawer.

It appears that for a number of years the Monarch Loan Company of Wichita was engaged in loaning money on farming lands in southern Oklahoma and northern Texas. It kept its checking account in the Fourth National Bank in Wichita. Mortgage loans were negotiated for this loan company by one J. R. London, a real estate dealer at Marietta, Okl. London's usual method was to have the applicant for a loan fill out a written statement of such facts as an investor would want to know about himself, his assets, and liabilities. Such application was forwarded to the loan company, and, if this preliminary statement was favorably received, the loan company would send its examiner to look over the property and make whatever further investigation was desired. Then a note and mortgage executed by the borrower were forwarded to the loan company together with an abstract of title to the mortgaged property and the opinion of a firm of lawyers approving the title. The loan company would then take out a policy of insurance guaranteeing the title. This insurance was furnished by the Kansas City Title & Trust Company. Certain deductions were made from the amount of the loan for commission, abstract, recording, and insurance title fees; but these details require no present attention. The loan company would then draw its check on the Fourth National Bank in Wichita in favor of the borrower for the net amount of the loan, and mail it to London for delivery to the payee. In eight or nine years just prior to 1929, London negotiated about a hundred such loans, seven of which were fraudulent. In some of these seven instances the applications, notes, and mortgages were signed by London in the names of fictitious persons; in others the names of existing persons were forged by him. The abstracts of title were tampered with, and the name and seal of a fictitious notary used in at least one instance. When the loan company's checks payable to the supposed barrowers were received by London, his usual method of dealing with them was to indorse the name of the payee and follow this with his own name, thus:

"David Cooper

"O. K. J. R. London."

In two instances he indorsed the name of the payee without following it with his own signature. The checks carrying these forged indorsements and bearing the usual chain of indorsements of banks through which they passed were paid by the Fourth National Bank in Wichita, and the loan company's checking account was charged therewith. According to the practice of the bank, monthly statements of the condition of its checking account were rendered to the loan company, and all checks which the bank had paid and charged against its checking account during the month were returned therewith to the loan company. The seven checks with forged indorsements charged by the bank against the loan company and relevant data may be conveniently set down thus:

Date of check. Amount Payee. Paid by bank. Check returned with

mo. statement.

1. 9"22"1923. $3559.20 William York 9"27"1923. Oct. 1, 1923.

2. 11"23"1925. 800.00 Richardson 11"27"1925. Dec. 1, 1923.

Watson

3. 6"30"1926. 1986.00 F. B. Brocket 7"7"1926. Aug. 1, 1926.

4. 10"21"1926. 8000.00 A. J. Allen 10"27"1926. Nov. 1, 1926.

5. 4"13"1927. 943.75 Lillian McCoy 4"21"1927. May 1, 1927.

6. 7"26"1927. 2230.00 David Cooper 8"1"1927. Sept. 1, 1927.

7. 9"19"1927. 1414.90 J. M. Thomas 9"15"1927. Oct. 1, 1927.

To forestall early discovery of his forgeries, London paid the interest on the bogus loans himself, but eventually a notice from the loan company to David Cooper concerning the interest on his supposed loan brought a prompt response that he owed nothing. This caused the loan company to make an investigation which developed...