New Amsterdam Cas. Co. v. Albia State Bank, 40945.

• Decision Date: 17 November 1931
• Docket Number: No. 40945.,40945.
• Citation: 214 Iowa 541,239 N.W. 4
• Parties: NEW AMSTERDAM CASUALTY CO. v. ALBIA STATE BANK.
• Court: Iowa Supreme Court

214 Iowa 541

239 N.W. 4

NEW AMSTERDAM CASUALTY CO.

v.ALBIA STATE BANK.

No. 40945.

Supreme Court of Iowa.

Nov. 17, 1931.

Appeal from District Court, Monroe County; Elmer K. Daugherty, Judge.

Action at law filed September 8, 1927, against the defendant bank by an assignee of a depositor (county treasurer) for cashing a school fund check on a forged indorsement by the county auditor and charging the depositor's account with the amount of the check. The facts, pleadings, and issues are sufficiently set forth in the opinion. The jury, having been instructed by the trial court, returned a verdict for this defendant. Motion for new trial was overruled, and the court in conformity to the verdict entered judgment against the plaintiff. The plaintiff appeals.

Reversed.Stipp, Perry, Bannister & Starzinger and Donald D. Holdoegel, all of Des Moines, and Mabry & Mabry, of Albia, for appellant.

Bates & Simmons and Anderson & Perry, all of Albia, for appellee.

DE GRAFF, J.

This action was commenced against the Albia State Bank by the New Amsterdam Casualty Company (appellant) as an assignee under a written assignment signed by Monroe county, Iowa, which county was a depositor at the defendant bank. The plaintiff surety paid the county for the defalcation and forgery of the then county auditor, W. H. Neighbour, and on September 2, 1927, took the written assignment from Monroe county, which assignment will be presently noted. The depositin question in the defendant bank was made by the then treasurer of Monroe county, and consisted of school funds. The defendant bank in its answer pleads:

(1) That the depositor, treasurer of Monroe county, was negligent in the issuance and delivery of the check in question to the county auditor of Monroe county, Iowa;

(2) That the depositor and the board of supervisors of Monroe county were negligent in not sooner discovering the forgery of the county auditor Neighbour and in notifying the bank so that the bank could recoup its loss; and

(3) That the depositor and board of supervisors were negligent in not notifying the bank upon the discovery of the forgery of said county auditor.

The facts disclose that W. H. Neighbour was the auditor of Monroe county from January 1, 1921, to January 1, 1925, when he was succeeded in office by the election of Isabella Hope, who had been deputy county auditor in 1922, 1923, and a part of 1924. The ex-county auditor, Neighbour, is a self-confessed forger and was indicted in January, 1925, for the crime of forgery of a note and mortgage involving school funds on deposit by the treasurer of Monroe county, to which indictment Neighbour entered a plea of guilty and was sentenced to the state penitentiary. Neighbour was a witness upon the trial on the indictment and testified that he made the George Lucas school fund loan of $500 and signed the name of George Lucas and wife to the mortgage and took the acknowledgment himself. “I did not tell them (Lucas and wife) about it. I took the note to the County Treasurer and got a check for $500. I wrote his (Lucas's) name on the back and then wrote my name and cashed it at the Albia State Bank. I got the money and used it myself. There was no application for the loan, no abstract furnished. I made the papers September 6, 1922. I never took the matter up with the Board of Supervisors.” The record also discloses that there was no appraisement made of the land and that the loan was never approved or disapproved by the board of supervisors. He also testified that he made a similar loan in the name of John Haluska and pursued the same method. One of these forged notes was in 1921 for $2,000 at the People's National Bank and was increased in 1923 to $3,350 on the same 40. The $1,350 check was cashed at the Iowa Trust & Savings Bank. It appears that the reputation of Neighbour for honesty was considered good six or twelve months after the Lucas mortgage transaction. There was no investigation until Neighbour went out of office in 1925. The state checkers made a general check of the county offices of Monroe county for the year 1923. In the report of the state checkers filed August 9, 1924, concerning the auditor's office, as shown by Exhibit 13 there is in said report what is termed “Comments on Auditor.” In this report it is said that there is considerable carelessness in the handling of school funds, in that loans were not scrutinized closely and have not been approved by the board of supervisors; that abstracts were not furnished in some cases; that some loans were not filed for record for several months after the making of a loan; that all collections of interest and principal should be paid direct to the county treasurer and should not be collected by the auditor, as has been the custom heretofore. Not until April 29, 1925, did the state checkers in their report, Exhibit 0, point out that the school fund loan made to George Lucas in the amount of $500 was a forgery and that the loans made to John Haluska aggregating $3,350 were also forgeries.

It may be pointed out that in the latter part of 1923 it was discovered by the deputy auditor, Isabella Hope, that some of the school fund mortgages had not been recorded. This did not impeach the honesty of the county auditor, but was attributed solely to the negligence of Neighbour. The George Lucas mortgage was found by the state checkers in 1923 not recorded, and upon the advice of the checkers the Lucas mortgage was recorded September 26, 1923. The state checkers in their examination of the auditor's office in 1923 discovered no dishonesty on the part of the auditor, and in the same year the board of supervisors made a check of the school fund loans, but discovered nothing to arouse suspicion. It is true that in 1923 the deputy auditor Hope suspected that her superior officer Neighbour had drawn some of his salary in advance, but this matter was adjusted. As heretofore pointed out, on August 14, 1924, the state checkers examined the auditor's office, but failed to discover any dishonesty or forgery in connection with school fund loans, but did criticize the auditor for carelessness. The state checkers' report (Exhibit 13) was later found in a cupboard behind some adding machine paper, but not until the auditor's term of office had expired, and consequently said report had never been called to the attention of any other county officer. After the election of Isabella Hope as county auditor, she broke open a lock box in the auditor's office and then discovered the original purported $500 note and mortgage of George Lucas. Thereupon, a banker was called to inspect the signatures and declared them to be forgeries. The papers were then presented to George Lucas himself, who denied their genuineness, and the canceled check was also presented to Lucas, who denied his indorsement thereon. This all happened in the early part of January, 1925, and it was the first time anybody, aside from Neighbour himself, knew of the forgeries. It may also be said that the evidence discloses that the then presidentof the defendant Albia State Bank reviewed the last state checkers' report which set out all the forgeries, and he assisted in obtaining an adjustment from the surety (plaintiff herein) on Neighbour's official bond. At that time the president of the State Bank took the canceled checks with the forged indorsements from the auditor's office. At that time the defalcations and forgeries of Neighbour, then ex-county auditor, became public knowledge, and thereupon Neighbour was promptly indicted and pleaded guilty to the forgery of a school fund note and mortgage and the indorsement of a school fund check which was the purported Lucas note, mortgage, and check.

On September 2, 1927, Monroe county, by its officers, assigned to this plaintiff, New Amsterdam Casualty Company, all claims and causes of action against the defendant Albia State Bank. The assignment in question was made in connection with the adjustment between this plaintiff, as surety on Neighbour's official bond, and Monroe county, by reason of the forgeries and defalcations of the county auditor Neighbour.

On or about January 1, 1925, when the forgeries were first discovered, W. H. Neighbour was indebted to Monroe county for approximately $8,000 for funds which he had wrongfully converted. Neighbour was insolvent in substantially the same amount. The only proved assets possessed by Neighbour on or about September 6, 1922, when the forgery in question was committed, were several bank accounts, the total of which was somewhat less than his total defalcations, which accounts were in all probability the money wrongfully abstracted from Monroe county. A brief summary of these accounts may now be stated. Neighbour's account was opened in the Iowa Trust & Savings Bank on August 13, 1924, and on that date he had on deposit $9.95. On March 10, 1925, the balance in the account of W. H. Neighbour, county auditor, in that bank was $24.29.

Neighbour also had an account with the Albia State Bank, the highest balance of which was $72 on September 8, 1924. This account was closed on November 21, 1924 A. J. Roberts was the acting managing officer of the Albia State Bank, and he testified that if he had received any notice from the county or county officer that the Lucas check was cashed upon a forged indorsement, the bank “would have proceeded with legal proceedings to get our money. We would have gone right after Mr. Neighbour. I did not know that the check had been cashed on a forged endorsement until this suit was instituted. Neighbour was then in the reformatory. We talked it over in the bank and we concluded that Neighbour was then down and out.”

As to the People's National Bank, Neigh-bour carried two accounts, one in his own name and one in the name of the county auditor. It was opened January 14, 1921. The account did not show any balance on September 6, 1922. It shows that the account was closed on August 3, 1922, and...