Mid-Continent Nat. Bank v. Bank of Independence

• Citation: 523 S.W.2d 569
• Decision Date: 05 May 1975
• Docket Number: No. KCD,MID-CONTINENT,KCD
• Parties: 16 UCC Rep.Serv. 1286 NATIONAL BANK, Plaintiff-Appellant, v. BANK OF INDEPENDENCE, Defendant-Respondent. 26779.
• Court: Court of Appeal of Missouri (US)

Page 569

523 S.W.2d 569

16 UCC Rep.Serv. 1286

MID-CONTINENT NATIONAL BANK, Plaintiff-Appellant, v. BANK OF INDEPENDENCE, Defendant-Respondent.

No. KCD 26779.

Missouri Court of Appeals, Kansas City District.

May 5, 1975.

Rehearing Denied June 2, 1975.

William F. Mauer, Kansas City, for plaintiff-appellant.

Billy S. Sparks, Linde, Thomson, Van Dyke, Fairchild & Langworthy, Kansas City, for defendant-respondent.

Before DIXON, C.J., and SHANGLER and WASSERSTROM, JJ.

SHANGLER, Judge.

This action is on a cashier's check for $15,370 issued by plaintiff Mid-Continent National Bank to Mildred Ortega (now Bauman) and negotiated to the defendant First National Bank of Independence, which obtained payment upon presentment of the check. The cashier's check had been purchased by Ortega with her personal check knowingly drawn against insufficient funds in the defendant Bank of Independence. The plaintiff bank sought recovery of $12,870, the balance remaining after Ortega reimbursed $2500, on the theory that the defendant Bank of Independence was not a holder in due course of the instrument because it took with notice of the Ortega fraud. Trial to the court resulted in judgment for the defendant Bank of Independence.

The trial was upon deposition testimony and evidence stipulated into the record discursively by counsel. On this appeal, the conclusiveness of the stipulation has come into question, but this much remains undisputed:

The litigation results from the defalcations of Ms. Ortega while employed as a teller by the defendant Bank of Independence from December of 1965 until June 5, 1969. Among her duties at the collection window was to cash bonds, issue cashier's checks, pay and receive. The duties of this window were shared by Dorothy Walker, Assistant Cashier to whom Ms. Ortega was nominally subordinate. Ms. Walker was under the direction of Don Meyers, the Cashier. Through the use of false entries (which were never fully reconstructed), Ms. Ortega managed to conceal a shortage in her drawer which, by June 3, 1969, amounted to $15,370.00. This shortage was not detected by twelve successive Federal, State and internal audits conducted between January 3, 1967 and August 9, 1968.

While employed by the Bank of Independence, Ms. Ortega became acquainted with Linda McCrary, who subsequently left the defendant bank for employment as a teller with the Mid-Continent Bank. Ms. Ortega testified that June 3, 1969, was the last work day before her vacation. After the close of business, she inquired of Ms. McCrary whether she would issue a cashier's check for her personal check drawn on the Bank of Independence. Ms. McCrary agreed she would. (The parties have stipulated that, if she testified, Ms. McCrary would either deny the conversation altogether or state that she did not remember it.) On the morning of June 4, 1969, the first day of her vacation, Ms. Ortega presented her personal check for $15,370 drawn on the Bank of Independence to Ms. McCrary at the Mid-Continent Bank for a cashier's check in like amount to her order. Ms. McCrary prepared the check, presented it to an officer for signature, and thus validated, delivered the check to Ms. Ortega.

Later that same day, Ms. Ortega delivered the cashier's check, endorsed in blank, to Ms. Walker who returned to her from the drawer the personal check in the same amount drawn by Ms. Ortega on her account in the Bank of Independence. According to the bank records (as stipulated but not displayed at the trial or on this appeal) and the testimony of Ms. Walker, Ms. Ortega placed the cashier's check in the drawer, informed Ms. Walker that an entry on the blotter which showed a transfer of cash to the window of another teller had been made in error and asked that the entry be corrected.

The cashier's check was forwarded through banking channels for presentment and acceptance and was paid by the plaintiff Mid-Continent Bank. The check which Ms. Ortega drew to purchase the cashier's check was dishonored by the Bank of Indepencence for want of sufficient funds.

Ms. Ortega was charged by the United States with false entries and, on April 10, 1970, was sentenced to probation for a term of five years on her plea of guilty.

The balance of the evidence, the deposition of four witnesses, is discordant.

The plaintiff Mid-Continent Bank (appellant here) contends that the defendant Bank of Independence did not take the cashier's check for value and without notice of defenses against it, and thus was not a holder in due course of the instrument within § 400.3--302, RSMo 1969, V.A.M.S. On these critical issues, the deposition testimony of the parties stands in stark dispute.

The deposition testimony of Ms. Ortega was that for over two and one-half years she had made false entries on the daily blotter which resulted in a growing shortage in her window. In order to balance the blotter, she placed in the drawer and entered on the debit side of the daily transaction sheet checks of her own in the amount of the shortage drawn on insufficient funds in accounts at the Bank of Independence and Mid-Continent.

Ms. Ortega testified that it was the practice of the Bank of Independence not to return checks drawn by its employees on insufficient funds. Each day the Bank of Independence was furnished a computer analysis of all insufficient fund checks presented there, identified by drawer and account number. Although her name frequently appeared on that list, Ms. Ortega was never called on by the officers of the bank to make explanation or redemption, even though as much as $1,000 in insufficient funds checks might be shown against her account at any given time. Even the computer debit of two dollars against an account for each insufficient item was reversed as to accounts of bank employees by manual entry of recredit of the charge.

All insufficient fund items were routed through the transit department, those written by Ms. Ortega were not charged against her account, but were forwarded to her window, treated as incoming cash, were placed in her drawer and debited on her blotter as a receipt of money. The insufficient funds thus substituted for cash gave the verisimilitude of a balanced blotter. Ms. Ortega testified that only she and Ms. Walker knew the true condition of the drawer.

As to the operation of the window, Ms. Ortega testified that both she and Ms. Walker proved the daily blotter; they took turns counting the drawer, one counted the checks while the other counted the cash. Ms. Walker testified, however, that while she helped to count the checks or the cash in the drawer, Ms. Ortega almost always made the entries on the blotter. She denied that she had ever seen any checks written by Ms. Ortega in the drawer. It was the testimony of Ms. Ortega, on the other hand, that Ms. Walker not only knew of her defalcations (from her knowledge that Ms. Ortega was holding her own insufficient funds checks in their drawer--some for as long as two and one-half years), but that they had discussed the drawer shortages on several occasions. Then, on the evening of June 3, 1969, Ms. Walker told Ms. Ortega that she was going to have to do something about the growing shortage, one way or another. Ms. Ortega replied that she intended to purchase a cashier's check to replace her personal check in the drawer by writing a personal check on the Bank of Independence. Ms. Ortega did not explicitly tell Ms. Walker that she did not have sufficient funds on hand at the Bank of Independence, but that Ms. Walker knew this, since a cashier's check would not have been necessary had the other checks been sufficiently funded.

According to Ms. Ortega, she had placed her personal check for $15,370 in the drawer to cover the accumulated shortage; the check was entered as a debit on the blotter. Then, on June 4, 1969, the first day of her vacation, Ms. Ortega delivered the cashier's check to Ms. Walker who returned the Ortega personal check from the drawer. Ms. Ortega stated that no words were exchanged between them. She insisted, however, that she did not instruct Ms. Walker to change the amount shown as cash on the blotter from the night before, since such an entry would result in a discrepancy between holdover cash figure from the window blotter and the general books of the bank.

Ms. Walker recounted a different narrative of the critical events. She had worked at the Bank of Independence for thirteen years and was then the Assistant Cashier. She and Ms. Ortega shared the collection window and drawer. Ms. Walker never saw any checks in the drawer written by Ms. Ortega and disclaimed any awareness that Ms. Ortega was using her checks to cover shortages. Nor did she remember the conversation of June 3, 1969, when she purportedly importuned Ms. Ortega to correct the drawer. She did remember that on June 4, 1969, Ms. Ortega came to the window and placed the cashier's...