R. H. Kimball Inc. v. R.I. Hosp. Nat. Bank.

• Decision Date: 26 July 1946
• Docket Number: No. 8728.,8728.
• Citation: 48 A.2d 420
• Parties: R. H. KIMBALL, Inc., v. RHODE ISLAND HOSPITAL NAT. BANK.
• Court: Rhode Island Supreme Court

48 A.2d 420

R. H. KIMBALL, Inc.,

v.RHODE ISLAND HOSPITAL NAT. BANK.

No. 8728.

Supreme Court of Rhode Island.

July 26, 1946.

COPYRIGHT MATERIAL OMITTED.

Exceptions from Superior Court, Providence and Bristol Counties; Alberic A. Archambault, Judge.

Action in assumpsit by R. H. Kimball, Inc., a corporation, against the Rhode Island Hospital National Bank, to recover the amount of unauthorized checks paid by the defendant and charged to plaintiff's account in the defendant. To review the trial justice's decision denying defendant's motion for new trial after a jury's verdict for the plaintiff, the defendant brings exceptions.

Exceptions overruled and case remitted for entry of judgment on verdict.

Swan, Keeney & Smith, Eugene J. Phillips, Charles E. Tilley, and Marshall Swan, all of Providence, for plaintiff.

Tillinghast, Collins & Tanner, Harold E. Staples, Russell P. Jones, and Henry W. Rigby, all of Providence, for defendant.

FLYNN, Chief Justice.

This action in assumpsit was brought by R. H. Kimball, Inc., a corporation, to recover the amount of certain unauthorized checks, which had been paid by the Rhode Island Hospital National Bank, a corporation, and charged to the plaintiff's account in that bank. A trial in the superior court resulted in a jury's verdict for the plaintiff in the sum of $39,170.42, and the trial justice thereafter denied the defendant's motion for a new trial. The case is here on defendant's exceptions to that decision and to ninety-six other rulings made during the course of the trial.

The plaintiff alleged in its declaration, in substance, that between March, 1938 and August, 1942, inclusive, the sum of $61,646.22 had been improperly charged by the defendant to the plaintiff's account, by reason of the bank's payment of ninety-three unauthorized checks, each drawn to the order of the bank and each having the signature of Gladys H. Kimball forged thereon by the plaintiff's bookkeeper, Arvid S. C. Anderson.

The defendant filed a plea of the general issue and also several special pleas, setting up certain defenses and facts upon which the plaintiff was alleged to be estopped or precluded from any recovery.

The following summary of facts from the extensive transcript is deemed to be sufficient to properly understand the various contentions of the parties. For many years the plaintiff maintained a substantial deposit in defendant's bank. The bank was authorized to pay and to charge to the plaintiff's account only those checks which were signed for the plaintiff by either Howard Kimball, its president and treasurer, or Gladys H. Kimball, its vice-president. Two signature cards, showing such order and also exhibiting the authorized signatures of these officers, were at all times in possession of the bank, one being kept in the teller's cage and the other in the bookkeeping department at the main bank.

Prior to his employment by plaintiff, Anderson, who admittedly forged all the checks, had worked as a register clerk and otherwise in what later become the defendant's main bank. He therefore was acquainted with some of its tellers and some of them also knew him. He first came to the plaintiff's office as an employee of an accounting who had been engaged by plaintiff to bring some of its books to date. Later he was employed by plaintiff as its bookkeeper and office manager. For many years prior to 1938, he had rendered efficient service to the plaintiff in that capacity and had given it no reason to doubt or suspect his honesty. His duties included the keeping of all records and books of account; making deposits of incoming checks; making out all the plaintiff's checks with the exception of the signatures, which were added by the president and treasurer or the vice-president; making cash withdrawals, on properly signed checks, for payroll and petty cash purposes; receiving from the bank monthly statements and cancelled checks and reconciling them with plaintiff's records and books, subject to monthly supervision by independent accountants. He never had authority to sign plaintiff's checks, and no checks were ever signed in blank by the officers for him to fill in later.

All of the ninety-three frauds involved here were accomplished in the same way, that is, by Anderson's obtaining cash from the bank on withdrawal checks which he had made out on the plaintiff's regular printed checks and which were made payable to the bank; but on each of these checks the name ‘Gladys H. Kimball’ appearing under the printed name, R. H. Kimball, Inc., was forged by Anderson. These checks were all cashed by him at the main bank, although withdrawal checks for payroll and legitimate purposes were usually presented to the defendant's branch, which was located near the plaintiff's business.

The bank had an established system for examining depositors' checks. The tellers were expected to have, from study and experience, a knowledge of the signature of each depositor and were expected to examine each check, when presented, to determine the authenticity of the signature. This was to be done by comparing the signature on each check with the teller's or clerk's ‘mental picture’ of that depositor's signature. At least five persons, including tellers and clerks in the bookkeeping department, were expected to make similar examinations of all checks of a depositor before actually charging that depositor's account, and any doubtful check was supposed to be brought to the attention of a superior officer in that department. Many doubtful checks of other depositors were thus referred to and passed on by that officer during the period in question, but none of these ninety-three checks was ever questioned by any of the tellers, clerks, or officers of the bank. There was no evidence that any teller, clerk or officer ever used the plaintiff's signature card by which to verify the signature on any of these forged checks; nor is there specific evidence that any of the ninety-three checks was actually and individually inspected according to the bank's system. Apparently the character of the forged signatures and inferentially the tellers' confidence in Anderson entered into the composite mental picture which was used as a standard in passing upon the signatures on the forged checks.

The plaintiff's bookkeeping system called for pads of blank checks, without stubs, which were numbered serially and on which was also printed the name R. H. Kimball, Inc. Below that was a blank line for the signature of a proper officer. These pads of numbered checks were furnished by the bank. Plaintiff used a loose-leaf cash book as a part of the bookkeeping system that was installed for it by the accountants. This cash book also served the purpose of ordinary check stubs, and therein was listed in numerical order every legitimate check that was drawn. The checks themselves, even if voided for any reason, were all kept and, with the cash book, were examined monthly by a firm of independent accountants. Such checks and cash book conformed to the approved practice followed by the great majority of manufacturers doing business, in nature and extent, like that of the plaintiff.

The method pursued by Anderson to deceive the bank and to conceal his frauds from the plaintiff and the accountants was complicated. Without intending to explain all the details, the following facts will indicate substantially the general plan. Anderson, when needing money, would segregate certain of the incoming checks on plaintiff's accounts receivable and withhold them from his regular deposit in the defendant's branch bank. He would later make a separate deposit of these checks in the defendant's main bank, using a duplicate deposit slip which he would later conceal and destroy. Simultaneously with the deposit, or about the same time, he would cash a forged check payable to the bank in the amount of such deposit. The check used would be taken from the last part of the pad because its serial number would not be required for current legitimate purposes. At the end of the month, when he received the plaintiff's bank statement and cancelled checks, he would destroy the forged checks, erase the figures showing the special deposit and corresponding withdrawal, and then erase and change the totals of deposits and withdrawals on the statement, so that the bank's statement and balance appeared to agree with balances on plaintiff's books.

No forged check was ever entered in the cash book. All the checks listed there were legitimate and always in numerical sequence. When the numbers on legitimate checks were getting close to the numbers on the checks previously used in his forgeries, he would request the bank to issue a new pad of checks, beginning with a numbered check, followed by others, which would duplicate the numbered checks that he had already used in his forgeries. The bank ordered and issued such checks. These new checks thus duplicating numbers on the forged checks were then used by Anderson for legitimate purposes. They were entered in proper sequence so that entries in the cash book and the cancelled checks were apparently regular and always available to the accountants upon their monthly examinations. There never was any erasure or break in the sequence or in the listings of the legitimate cancelled checks or in the totals of the checks in the cash book. However, by constant manipulation of other records of sales, accounts receivable, deposits, and inventory, Anderson was able to keep his accounts in apparent good order and to conceal his forgeries, notwithstanding the audits that were made by the accountants.

Howard Kimball, the president and treasurer, was the only active officer of the plaintiff corporation. His wife, Gladys H. Kimball, never came to the office and she signed checks only when her husband was away. He devoted much of his time outside of the office to the selling end of the business. He never personally audited the bank statements or ...