Pacific Coast Cheese v. Security First National Bank ofLos Angeles

• Citation: 45 Cal.2d 75,286 P.2d 353
• Court: United States State Supreme Court (California)
• Decision Date: 12 August 1955
• Parties: PACIFIC COAST CHEESE, Inc., Plaintiff and Appellant, v. SECURITY FIRST NATIONAL BANK OF LOS ANGELES, a Banking Corporation, Defendant and Respondent. L. A. 23400.

Page 353

286 P.2d 353

45 Cal.2d 75

PACIFIC COAST CHEESE, Inc., Plaintiff and Appellant, v. SECURITY FIRST NATIONAL BANK OF LOS ANGELES, a Banking Corporation, Defendant and Respondent.

L. A. 23400.

Supreme Court of California, In Bank.

Aug. 12, 1955.

Jesse A. Hamilton, Lakewood, for appellant.

Iverson & Hogoboom and Paul E. Iverson, Los Angeles, for respondent.

GIBSON, Chief Justice.

Certain checks drawn against plaintiff's commercial account were altered so as to raise the amounts for which they had been written. Defendant bank honored the checks as altered, and the raised amounts were deducted from plaintiff's account. Subsequently the bank dishonored other checks of plaintiff on the ground that insufficient funds remained in the account after the deductions had been made. This action was brought to recover the amounts which plaintiff asserted had been wrongfully deducted from its account by reason of the bank's payment of the raised checks. Plaintiff also sought damages for asserted injury to credit resulting from the dishonoring of checks for lack of funds. The trial court directed a verdict for defendant, and plaintiff has appealed.

From January 25, 1952, through the month of February, plaintiff's bookkeeper drafted a series of checks for salaries and advances on salaries, filling in either by handwriting or by typewriter the date, the name of the payee, and the amount in figures, but leaving blank the space for the written amount. Plaintiff's manager signed the checks while they were in this condition and returned them to the bookkeeper, who put them through a protectograph machine, which is a device for perforating the amount in words on a check. The manager did not see what amounts were entered by use of the machine. There is evidence from which it may be inferred that, except in one instance, the bookkeeper inserted the number '1' in front of the figures which were on the checks when they were signed and that he perforated corresponding sums on the checks when he put them through the protectograph, in effect raising each check by $100. It also may be inferred that he raised one check for $52.05 by altering the first '5' to an '8' and writing in the larger sum with the protectograph.

The first altered check was charged to plaintiff's account on January 25 and was indicated by an entry of $130 an the January bank statement. Shortly after the statement arrived in the mail, the manager found it on his desk, placed it in his drawer and, upon examining it several days later, noticed that there was no canceled check or voucher for the $130 deduction. He did not mention the missing item to anyone since he expected that it would arrive in the following month's statement, and he soon forgot about it.

On March 5, 1952, John Bell, an employee who occasionally made deposits for plaintiff, called at the bank and obtained the February statement, although the bank had not been authorized to deliver statements to him. Plaintiff's manager first suspected something was wrong when, on March 8, he learned that a check which was not one of the altered series had been dishonored for lack of sufficient funds. He discovered that plaintiff's account had been charged by the bank with amounts which did not correspond with plaintiff's records, and, although he made a serch, he could not find the canceled checks representing the charges made by the bank. The altered checks were delivered to Bell with the February statement, and he gave them to the bookkeeper. The checks were not introduced in evidence, and the only showing as to what happened to them is the testimony of plaintiff's manager that two of the checks were probably in the district attorney's office. The manager said that he did not have any of them, and it does not appear that anyone connected with plaintiff other than the bookkeeper ever saw them. The bank served on plaintiff a notice to produce all checks, but there is no evidence that the bank made any other effort to locate them.

The manager filed a criminal complaint against the bookkeeper and, as plaintiff's assignee, instituted a civil action, obtaining judgment against the bookkeeper for an amount which included the same items that plaintiff now asserts were improperly deducted from its account by the bank. The judgment has not been satisfied.

The general rule is that a bank may not charge its depositor's account with payments made on altered or forged checks unless some conduct of the depositor falling under the principles of negligence or estoppel contributed to the loss and the bank was itself free from negligence. Basch v. Bank of America, 22 Cal.2d 316, 321, 139 P.2d 1; Union Tool Co. v. Farmers', etc., Nat. Bank, 192 Cal. 40, 46-48, 218 P. 424, 28 A.L.R. 1417; Glassell Development Co. v. Citizens' Nat, Bank, 191 Cal. 375, 379, 216 P. 1012, 28 A.L.R. 1427; cf. Los Angeles Inv. Co. v. Home Sav. Bank, 180 Cal. 601, 604, 182 P. 293, 5 A.L.R. 1193. This rule has been applied where, as here, the alteration or forgery was committed by an employee of the depositor. Basch v. Bank of America, 22 Cal.2d 316, 320, 321, 139 P.2d 1; Union Tool Co. v. Farmers', etc., Nat. Bank, 192 Cal. 40, 44, 46-48, 218 P. 424, 28 A.L.R. 1417. When it appears that a bank has made payment on the basis of an altered or forged check, the burden is on the bank to justify the charge by establishing, as an affirmative defense, both that it was free from negligence and that the depositor was negligent or was estopped to deny the correctness of the payments. Basch v. Bank of America, 22 Cal.2d...