Liberty Mut. Ins. Co. v. Kleinman

• Decision Date: 25 March 1957
• Citation: 149 Cal.App.2d 404,308 P.2d 347
• Court: California Court of Appeals Court of Appeals
• Parties: LIBERTY MUTUAL INSURANCE COMPANY, a corporation, Plaintiff and Appellant, v. Samuel KLEINMAN and Herman Hertzberg, etc., et al., Defendants and Respondents. Civ. 21868.

Page 347

308 P.2d 347

149 Cal.App.2d 404

LIBERTY MUTUAL INSURANCE COMPANY, a corporation, Plaintiff and Appellant, v. Samuel KLEINMAN and Herman Hertzberg, etc., et al., Defendants and Respondents.

Civ. 21868.

District Court of Appeal, Second District, Division 3, California.

March 25, 1957.

Rehearing Denied April 19, 1957.

Hearing Denied May 22, 1957.

Virgil R. Wells and Stegman & Stegman, Los Angeles, for appellant.

Jerome Weber, David Hoffman, Los Angeles, for respondents.

SHINN, Presiding Justice.

Liberty Mutual insured Dietzgen Company against loss suffered through the dishonesty of its employes. Los Angeles Blue-Print Company, a subsidiary of Dietzgen Company, was covered by the policy. Leon Tanner Eddy, manager of Blue-Print, took 80 checks payable to his employer, stamped the employer's endorsement, added his name as manager, cashed the checks and appropriated the proceeds to his own use, in the total amount of $7,446.19. Plaintiff paid this amount under its policy. Defendant Kleinman and Hertzberg cashed 54 of the checks in the total amount of $4,556.51 and the present action against Kleinman and Hertzberg is by the insurer, claiming as subrogee of Blue-Print. At the conclusion of the trial the court made findings in favor of plaintiff and entered judgment in its favor. Upon motion for a new trial the court vacated the findings and conclusions, made new ones, and entered judgment for defendants. Plaintiff appeals.

There was no conflict in the evidence and there appears to be no doubt as to the applicable legal principles. It was held in Meyers v. Bank of America Nat. Trust & Savings Ass'n, 11 Cal.2d 92, 102, 77 P.2d 1084, that the right of subrogation does not exist in favor of a surety on a fidelity bond except against persons who participated in the wrongful act against the surety's principal; the right of the surety to recover from a third party is governed by equitable principles and there can be no recovery unless the equities in favor of the surety are superior. In accord J. G. Boswell Co. v. W. D. Felder & Co., 103 Cal.App.2d 767, 230 P.2d 386. The factual issue at the trial was whether defendants were guilty of negligence. The complaint alleged that defendants knew or should have known that Eddy had no authority to cash the checks. This was treated as a sufficient allegation of negligence and was denied by the answer. The court found the allegation to be untrue. The finding is assailed as being without support in the evidence.

When we are urged to hold that a material finding is unsupported by the evidence we look to the opening brief of the appellant expecting to find a statement of the evidence bearing upon the issue. There is no statement in either of appellant's briefs as to the relations between Eddy and defendants over a period of more than three years nor as to the circumstances under which defendants cashed the checks. However, the facts are simple and we have decided to consider the point, notwithstanding the failure of counsel to obey the rule.

For some nine years Eddy served as manager of Blue-Print under appointment by Dietzgen, using cards furnished him which designated him as manager. He was manager in fact as well as in name and had full control over all normal operations. His maximum salary was $325 per month. In 1950 he became a customer of defendant's liquor store. He made purchases at least once a week for several years and was extended credit. He was generally known about the store as the manager of Blue-Print. He introduced other employes to defendants, paid his bills regularly and came to be regarded as a responsible business man. In 1951, after he had been a customer of the store for a year, he cashed the first of the checks that were payable to Blue-Print. During the ensuing 27 months he cashed 53 other checks with defendants, receiving the full amounts in money and merchandise. Defendants did not question his authority or make any inquiry of his employer. All the 80 or more checks cleared without incident.

If defendants had knowledge of any facts which made it their duty, in the exercise of ordinary care, to make inquiry of Blue-Print, they were chargeable with knowledge of Eddy's want of authority to negotiate the checks. We do not doubt that there is reason to suspect the authority of an agent who endorses his principal's name upon checks, by himself as agent, and openly cashes them for his own use. The principal is not bound unless the agent has acted within his actual authority. Civil Code, § 3102. This, however, is not the question. Blue-Print sustained the loss, has received indemnity, and the crucial question on the appeal is whether it appears, as a matter of law, that defendants were guilty of negligence. Defendants' transactions with Eddy were irregular, to say the least. Evidently defendants did not think so. They saw nothing wrong or even suspicious in Eddy's practice of cashing checks that were payable to his company. They asked him no questions and he told them nothing. While we would find it difficult to reconcile defendants' methods with the use of ordinary business judgment, we do not believe the court was required to find defendan...