Liberty Mut. Ins. Co. v. Enjay Chemical Co. (now Exxon Corp.)

• Decision Date: 17 January 1974
• Citation: 316 A.2d 219
• Parties: LIBERTY MUTUAL INSURANCE COMPANY et al., Plaintiffs, v. ENJAY CHEMICAL COMPANY (NOW EXXON CORPORATION) et al., Defendants.
• Court: Delaware Superior Court

Page 219

316 A.2d 219

LIBERTY MUTUAL INSURANCE COMPANY et al., Plaintiffs, v. ENJAY CHEMICAL COMPANY (NOW EXXON CORPORATION) et al., Defendants.

Superior Court of Delaware, New Castle County.

Jan. 17, 1974.

Walter P. McEvilly, of Prickett, Ward, Burt & Sanders, Wilmington, for plaintiffs.

Bruce M. Stargatt, and Jack B. Jacobs of Young, Conaway, Stargatt & Taylor, Wilmington, for Enjay Chemical Co. (now Exxon Corp.)

Allen M. Terrell, Jr., of Richards, Layton & Finger, Wilmington, for defendant, Johnson & Johnson.

OPINION

McNEILLY, Judge.

This is an action filed on November 5, 1971 by E. I. duPont deNemours & Company and its fidelity insurer, Liberty Mutual Insurance Company, (hereinafter collectively 'duPont'), to recover certain monies allegedly owed by defendants, Enjay Chemical Company (now Exxon Corporation, but referred to herein as 'Enjay'), and Johnson and Johnson. The basis of the action is the alleged non-payment of royalties under the terms of contracts whereby the plaintiff, duPont, granted unto Enjay and Johnson and Johnson the right to use certain duPont processes or procedures in consideration for defendants' payment of certain commissions or royalties. The terms of the contract are not in issue in this proceeding. In fact, the only basic issue involved is the question of whether the royalty payments which were transmitted by these defendants to duPont between 1962 and 1969 in the form of checks and converted by duPont's employee, C.H.D. who deposited the converted checks in his personal account at Bank of Delaware, did or did not constitute payment by defendants.

The record evidences that all royalties or other sums that duPont was entitled to from defendants were paid by checks. Over a period of nine years royalty checks totaling nearly One hundred thirty-five thousand dollars ($135,000.00) were fraudently endorsed and deposited to the personal account of C.H.D. who was an employee in the Elastomer Chemicals Department of duPont.

In the course of his assigned duties this accountant would periodically obtain possession and custody for official processing purposes incoming checks received by his Department from the defendants. These checks came to the Company on a quarterly basis, and as transmittal letters were received, with checks enclosed, C.H.D. would periodically withhold a transmittal letter and check; the check would be altered, fraudulently endorsed and then deposited to his account. The transmittal letter would be concealed, the thereafter to conceal his defalcation he would alter the next subsequent transmittal letter to indicate that the period covered by the subsequent transmittal letter included the period covered by the misappropriated check. By doctoring orderly letters to indicate that they covered a six-month period instead of a three-month period, he was successful in evading detection.

A review of duPont's records of royalty payments would reveal a transmittal letter covering a six-month period and receipt of a check in the proper amount which was received and credited to the duPont Company. It would not reveal a discrepancy in the sums received.

On or about September 13, 1971 a routine audit of duPont Company checks in the course of a bank reconciliation disclosed a questionable endorsement on one check. Thereafter, duPont's payment voucher authorizing this check was inspected and revealed that C.H.D. had both prepared the voucher and endorsed the check. Further investigation revealed two additional checks payable to a fictitious payee which had been issued in this manner, and then subsequent investigation disclosed additional transactions which led to the discovery of the nearly One hundred thirty-five thousand dollars ($135,000.00) discrepancies.

The royalty checks involved are hereinafter listed:

A. Checks drawn by Johnson & Johnson on its account with Chase Manhattan Bank, payable to duPont as follows:

                       Date                 Amount
                       ----                 ------
                i.     March, 1962      $  1872.50
                ii.    June, 1962          1998.15
                iii.   September, 1962     1129.45
                iv.    December, 1962      1462.30
                v.     March, 1963         1030.05
                vi.    June, 1963          1016.40
                vii.   September, 1963      140.35
                viii.  December, 1963      1925.00
                ix.    March, 1964         1575.00
                x.     June, 1964          1065.75
                xi.    September, 1964      700.00
                xii.   December, 1964       350.00
                xiii.  March, 1965         2625.00
                                        ----------
                                 TOTAL  $ 16889.95
                

B. Checks drawn by Enjay on its account with Citibank payable to duPont, as follows:

                             Date              Amount
                             ----              ------
                i.     July 20, 1965     $   5,521.41
                ii.    October 29, 1965      9,029.34
                iii.   August 2, 1966       17,576.08
                iv.    May 5, 1967          26,935.67
                v.     May 3, 1968          27,617.88
                vi.    November 6, 1968     15,379.80
                vii.   February 4, 1969     12,043.75
                viii.  August 8, 1969        1,549.26
                ix.    July 31, 1969           554.75
                x.     October 30, 1969        596.40
                                         ------------
                                  TOTAL  $ 116,804.34
                

As these checks were received C.H.D. physically altered the face thereof by typing under the payee's name (Account of C.H.D. .....). C.H.D. then endorsed the checks for deposit to his personal account at the Bank of Delaware.

All royalty checks during the nine-year period were sent by defendants to E. I. duPont deNemours Elastomer Chemicals Department, Wilmington, Delaware, 19898, Att: C.H.D., Control Division, in accordance with a written directive to that effect sent to defendants on duPont's letterhead by C.H.D.

Defendant, Enjay, has moved for summary judgment. Defendant, Johnson and Johnson, has moved to dismiss and plaintiffs have moved for summary judgment. Defendants, Johnson and Johnson and Enjay, raised two fundamental arguments in support of their motion:

(1) They have made payment to duPont and extinguished the debts owed to duPont.

(2) The suit, in any event, is barred by the three-year Statute of Limitations, 10 Del.C. § 8106.

Johnson and Johnson further argues that plaintiffs are estopped from contesting this motion because they consented to a similar prior motion by other defendants, and that the complaint is so frivolous as to defendant, Johnson and Johnson, that it should be dismissed and Attorneys fees awarded to said defendant.

duPont maintains:

(1) 'Payment' has not been made to duPont, as a matter of law:

(2) This action is not subject to the limitation of 10 Del.C. § 8106, but rather arises from a contract under seal not within the Statute of Limitations.

(3) No basis whatsoever exists for assertion of an estoppel.

I find no evidence in the record that employee, C.H.D., had any express authority to receive and endorse checks coming to his office in due course of business. On the other hand, there appears to be ample evidence that he had implied and apparent authority to receive and endorse checks coming to the Company from defendants.

During the entire nine years of business with the defendants it was C.H.D. who regularly received defendants' checks and endorsed them, sometimes to his personal account and sometimes to duPont's account, as herein previously stated. Not once is it shown in the record that duPont ever challenged or countermanded C.H.D.'s authority to receive and endorse checks which were properly paid to duPont's account, i.e., not converted, or that duPont ever advised defendants not to deal directly with C.H.D. as was done.

In the ordinary course of business dealings an Agent may be cloaked with three types of authority. There may be express authority conveyed to the Agent, either orally or in writing, or there may be an implied authority evidenced by conduct of the principal, or there may be apparent authority evidenced by the conduct of an employee who holds himself out as possessing authority with the apparent consent or knowledge of the principal so as to estop the principal from denying such authority.

Implied authority of an agent is, in fact, actual authority evidenced by conduct, that is the conduct of the principal being such as to justify a Jury in finding that the Agent had actual authority to do what he did. This may be proved by evidence of acquiescence with knowledge of the Agent's acts, and such knowledge and acquiescence may be shown by evidence of the Agent's course of dealing for so long a period of time that acquiescence may be assumed. Outlines of the Law of Agency by Floyd R. Mechem, 4th Ed., page 29.

Likewise apparent or ostensible authority of an Agent is such power as a principal holds his Agent out as possessing or permits him to exercise under such circumstances as to preclude a denial of its existence. It is such authority as a reasonably prudent business man using due care and discretion would naturally suppose the employee to have. Agency 2A C.J.S. § 157. Also see 3 Am.Jur.2nd, pages 470 to 481.

duPont concedes that C.H.D. regularly received and endorsed checks from defendants and would endorse the checks sometimes to his personal account and sometimes to duPont's account. This series of transactions occurred over a period of nine (9) years, and not once is it shown that duPont ever challenged or countermanded C.H.D.'s authority to receive and endorse the checks which were properly paid to duPont's account. Nor did duPont ever advise defendants to deal with anyone in the Company other than C.H.D. duPont did not repudiate C.H.D.'s authority to receive and endorse those checks where the proceeds were paid to duPont, and, therefore, it cannot be permitted to repudiate the same authority where the proceeds were diverted to C.H.D. Holding that the creditor-employer on the same facts was held to have ratified the unauthorized action by its Agent, the California Supreme Court in Navrides v. Zurich Insurance Company, 5 Cal.3d 698, 97 Cal.Rptr. 309, 488 P.2d 637, 641 (1971) stated:

'She (plai...