Pioneer Valley Savings Bank v. Indemnity Insurance Co.

• Decision Date: 21 January 1964
• Docket Number: Civ. No. 1275.
• Citation: 225 F. Supp. 404
• Parties: PIONEER VALLEY SAVINGS BANK, a Corporation, Plaintiff, v. INDEMNITY INSURANCE COMPANY OF NORTH AMERICA, a Corporation, Defendant.
• Court: U.S. District Court — Northern District of Iowa

225 F. Supp. 404

PIONEER VALLEY SAVINGS BANK, a Corporation, Plaintiff, v. INDEMNITY INSURANCE COMPANY OF NORTH AMERICA, a Corporation, Defendant.

Civ. No. 1275.

United States District Court N. D. Iowa, W. D.

January 21, 1964.

Kenneth T. Wilson, Charles F. Stilwill, Sioux City, Iowa, for plaintiff.

Wiley E. Mayne, Sioux City, Iowa, for defendant.

HANSON, District Judge.

This is an action arising out of a dispute between the Pioneer Valley Savings Bank and its blanket bond insurer, Indemnity Insurance Company of North America.

On or about May 21, 1960, the defendant, Indemnity Insurance Company of North America, executed and delivered to the plaintiff the Bankers' Blanket Bond, Form No. 24, bond No. S226298, wherein the defendant agreed to indemnify and hold harmless the plaintiff to an amount not exceeding $75,000.00 from and against such losses as are set out in the bond and subject to such limitations as are set out in the bond.

The pertinent coverages and limitations in the bond are:

"The losses covered by this bond are as follows: * * * (B) Any loss of Property through * * * common-law or statutory larceny, theft, false pretenses * * *"

"This bond does not cover: * * *

(d) Any loss the result of the complete or partial non-payment of or default upon any loan made by or obtained from the Insured, whether procured in good faith or through trick, artifice, fraud or false pretenses * * *"

The plaintiff alleges that on or about October 13, 1960, the plaintiff sustained a loss of property in the amount of $35,000.00 through false pretense or, alternatively, that this loss was sustained by reason of common-law or statutory larceny. The plaintiff claims the loss was covered by the bond and that plaintiff is entitled to recover $35,000.00 plus interest and costs.

The defendant claims that the loss was sustained by reason of a loan, that is, that the transaction wherein the $35,000.00 was lost constituted a loan. The defendant also claims that the transaction wherein the loss was sustained did not constitute false pretenses or common-law or statutory larceny. The plaintiff also alleged a check kiting scheme as bearing upon the transaction.

The essential and relatively undisputed facts are that Paul Dick came to the plaintiff Bank and there met Mr. Wies, President of the plaintiff Bank. Paul Dick gave the plaintiff Bank two checks each in the amount of $17,500.00 and each was drawn on the Early Savings Bank, Early, Iowa. In exchange for these two checks, the plaintiff Bank gave Paul Dick a draft payable to the Citizen's Savings Bank of Sac City, Iowa. This draft was drawn on the Live Stock National Bank of Sioux City, Iowa, the correspondent bank of the plaintiff Bank.

At a time shortly prior to the above transaction, Paul Dick had gone to the Arthur Trust and Savings Bank of Arthur, Iowa, and presented two checks each in the amount of $17,500.00 drawn on the Sac City Bank. A draft was given by the Arthur Bank in exchange which was drawn on the Iowa Des Moines National Bank. The two checks drawn on the Sac City Bank were not good in that there were insufficient funds in the drawer's account to pay the same. The draft received from the plaintiff Bank was used to increase the deposit in the Sac City Bank and the checks presented to the Arthur Bank drawn on the Sac City Bank then became good because there were then sufficient funds in the Sac City Bank to cover the checks. The two checks drawn on the Sac City Bank were then honored. The two checks drawn on the Early Bank and given to the plaintiff Bank were never honored.

The check for $35,000.00 which Paul Dick received from the Arthur Bank was deposited in the Early Bank to the account of Early Iron and Metal, Paul Dick owner, and with those funds a draft of the Early Bank was purchased in the amount of $33,610.70 payable to the Sac City Bank to cover $33,610.70 worth of bad checks which had been deposited there in the Marie Longman account. Paul Dick had deposited these checks, himself as drawer, in the account of Marie Longman and then two checks were written, one for $13,450.00 and one for $20,180.00 on this account. These were paid on the belief that the checks Paul Dick had deposited in this account were good. The two checks used to obtain the $35,000.00 from the Arthur Bank were drawn on the Sac City Bank. It was the $35,000.00 obtained from the plaintiff Bank which was paid to the Sac City Bank which made these two checks good. The two checks used to get the money from the plaintiff Bank were drawn on the Early Bank and were never paid because the series of frauds were finally discovered. Plaintiff Bank was out its $35,000.00. During this time there was only $6.97 in the account of Paul Dick in the Early Bank and there was only $2,492.77 in the account of Marie Longman.

The defendant argues that there was no evidence amounting to a representation of an existing fact or past event, and that there was only a promise to do something in the future. The evidence shows that in obtaining the draft from the plaintiff, Paul Dick did make a number of representations to Adam Wies. Among such evidence is the testimony that Paul Dick had sufficient checks to deposit which would cover the checks given to the plaintiff Bank and drawn on the Early Bank. Paul Dick stated that he was on his way to Omaha and that he needed the checks for his scrap business. He led the plaintiff to believe that he was still Vice-President of the Early Bank. Mr. Wies had known Paul Dick as a bank examiner. Paul Dick told Adam Wies that the two checks would be good when presented to the Early Bank for payment.

FINDINGS OF FACT.

1. Paul Dick represented that he had checks in his portfolio that would cover the checks given to the plaintiff Bank and this representation was false and was relied upon by Adam Wies and the plaintiff Bank.

2. Paul Dick misrepresented his position and credit with the Early Bank and his position and credit with the Early Bank were relied upon by Adam Wies and the plaintiff Bank.

3. Paul Dick intended to defraud Adam Wies and the plaintiff Bank.

4. The checks given by Paul Dick to the plaintiff Bank when presented in the usual course of business were refused by the Bank upon which they were drawn.

5. Paul Dick delivered to the plaintiff Bank two checks and secured another check drawn on the plaintiff Bank and knowingly did not have an arrangement or understanding or funds in the Early Bank sufficient to meet or pay the check.

6. Paul Dick perpetrated a check kiting scheme.

7. Plaintiff Bank never intended to make a loan to Paul Dick.

8. The transaction between the plaintiff Bank and Paul Dick would not be considered a loan transaction as that terminology is known to the experts in the banking business.

CONCLUSIONS OF LAW.

In Iowa the crime of false pretense may be predicated under either Section 713.1 or Section 713.3 of the Iowa Code, I.C.A. These two sections read as follows:

"713.1 False pretenses. If any person designedly and by false pretense, or by any privy or false token, and with intent to defraud, obtain from another any money, goods, or other property, or so obtain the signature of any person to any written instrument, the false making of which would be punished as forgery, he shall be imprisoned in the penitentiary not more than seven years, or be fined not exceeding five hundred dollars, or be imprisoned in the county jail not exceeding one year, or be punished by both such fine and imprisonment."

"713.3 False drawing or uttering of checks. Any person who with fraudulent intent shall make, utter, draw, deliver, or give any check, draft, or written order upon any bank, person, or corporation and who secures money, credit, or thing of value therefor, and who knowingly shall not have an arrangement, understanding, or funds with such bank, person, or corporation sufficient to meet or pay the same, shall be guilty of a felony, if such check, draft, or written order shall be for the sum of twenty dollars or more, and shall on conviction thereof be punished as in section 713.1 * * *."

The requirements under Section 713.1 as applied to the facts of this case are clear. There is a split of authority on the question of whether the criminal offense of false pretenses may be based solely upon the present intention of the defendant not to comply with his promises or statements as to his future acts. The cases are annotated in 168 A.L.R. 833. The Iowa rule is that the offense may not be so predicated. However, 168 A.L.R., p. 840, states:

"The rule that the crime of false pretense is not predicable upon the present intention of the defendant not to comply with a promise or statement as to his future acts is to be distinguished from the rule applicable to a false representation or statement regarding a past or existing fact, accompanied by a promise or statement as to a future act. The fact that a present intention of a person not to comply with his promises or statements as to a future act accompanied a false statement as to a past or existing fact does not render the latter statement ineffective to show his commission of the crime of obtaining property under false pretenses."

That statement is nearly the unanimous rule. It is certainly the Iowa rule. State v. Hollingsworth, 132 Iowa 471, 109 N.W. 1003; State v. Comes, 245 Iowa 485, 62 N.W.2d 753; State v. Tripp, 113 Iowa 698, 84 N.W. 546; State v. Montgomery, 56 Iowa 195, 9 N.W. 120; State v. Dowe, 27 Iowa 273; State v. Fooks, 65 Iowa 196, 452, 21 N.W. 561, 773.

In the present case, Paul Dick misrepresented his present ability to have the checks given to the plaintiff Bank paid when presented to the Early Bank when he stated that he had ample checks in his portfolio to cover the checks he gave to the plaintiff Bank. This misrepresentation was sufficient to cause the plaintiff Bank to rely upon. All the requirements of Section 713.1 have been met in this case.

The courts have drawn a...