Rice v. People's Sav. Bank

• Decision Date: 22 July 1926
• Docket Number: 19941.
• Court: Washington Supreme Court
• Parties: RICE et al. v. PEOPLE'S SAV. BANK.

247 P. 1009

140 Wash. 20

RICE et al. v. PEOPLE'S SAV. BANK.

No. 19941.

Supreme Court of Washington

July 22, 1926

Department 1.

Appeal from Superior Court, King County; Joseph Sessions, Judge.

Action by John H. Rice and another, doing business as copartners under the name and style of the Rice-Greisen Company, against the People's Savings Bank. Judgment for plaintiffs, and defendant appeals. Reversed, and action dismissed.

Kerr McCord & Ivey, of Seattle, for appellant.

Stratton & Kane, of Seattle, for respondents.

HOLCOMB J.

Two causes of action were involved herein, one to recover the sum of $2,317.50, and the second for $52, as the proceeds of two checks.

The pleadings disclosed that respondents, a copartnership, with their principal place of business in San Francisco, Cal maintained a branch office in Seattle, with one H. W. Watts as manager. Watts received the two checks which were payable to the firm, indorsed them in the name of the firm by himself as manager, and placed the proceeds in his personal account in the bank of appellant. The authority of Watts to indorse and deposit the checks is denied by respondents and affirmed by appellant. Respondents also allege notice of lack of authority in Watts to indorse and deposit the checks as was done, which is denied by appellant. Of the proceeds of the first check of $2,317.50, $1,000 thereof was checked out by Watts and accounted for to respondents, so that the trial court in finding and concluding in favor of respondents deducted that amount from the judgment.

At the trial below it was shown by the evidence of respondents' own auditor, who seems to have been in charge of the branch offices of respondents, that he had sent instructions on behalf of respondents to Watts as manager of the branch office in Seattle, and his secretary, in which he instructed that when checks were received in payment of subscriptions to stocks of companies which were being sold by Watts on behalf of respondents, the form of indorsement on such checks to be used by Watts was a general or blank indorsement, namely 'Rice-Greisen Company, by H. M. Watts, Manager.' The evidence shows that the checks in question here were indorsed in exactly that manner. Upon opening the branch office in Seattle of which he was manager, Watts also, under instructions from his home office in San Francisco, opened an account in the name of respondents in the Union National Bank at Seattle, in which, according to the instructions sent him, the banking business of respondents was supposed to be transacted. Respondents, however, never had any direct communication with the Union National Bank until after the transaction involved here, and no letter of instructions was ever sent to it. When Watts, through his secretary, a woman named Beilgard, presented the checks in question to appellant, appellant's officers made inquiries and discovered that Watts was local manager and the sole person in charge of the office of respondents in Seattle. They thereupon received the deposits and credited the same to the personal account of Watts. Some time in September, 1923, respondents discovered that Watts had not accounted for all the moneys received by him, but had deposited a part of the funds belonging to them to his personal account in the bank of appellant, and brought action to recover the amount that had not been accounted for. The personal account had been opened in the bank of appellant in May, 1923.

The questions to be determined as formulated by appellant, are these: First, Did Watts have actual or apparent authority to execute a general indorsement in the name of the company with respect to checks payable to the company? Second, assuming that he had such authority, real or apparent, did the bank incur a liability to the company by crediting the proceeds of such checks to the individual account of Watts? Or, in other words, was the form of the checks such notice to the bank as would charge it with the duty of refusing to credit the checks to the private account of Watts?

On the other hand, respondents state the case to be: Where an agent, without the knowledge and without the authority of his principal, presents to a bank a check which is payable to his principal, indorses it in the name of the latter, and then in his individual name, and when the bank, without inquiry, cashes the check and deposits the proceeds in the individual account of the agent, is the bank charged with notice of the apparent lack of authority of the agent, and liable for converting the funds of the principal? Respondents thereupon proceed to argue from the premise that it has become well settled as law that a mere agent has no apparent authority to indorse a check of his principal and have the proceeds deposited to his individual account, and that the bank depositing the proceeds of such a check to the agent's account is charged with notice of the apparent lack of authority of the agent, and is liable for conversion.

The proposition of respondents, however, presumes, and necessarily so, that Watts, the agent and manager of respondents in Seattle, was without authority to indorse the name of his principal to checks. As shown by the reference to the evidence of the company's auditor, which was the only evidence offered on behalf of respondents on that question, Watts had authority to indorse checks in blank, or generally. It is true that the instructions given to him, and by which he was bound as between him and his principal, were to deposit the funds to the credit of respondents, his principals, in the bank in Seattle selected by him for the transaction of their business. But of that appellant had no knowledge. There is not a scintilla of evidence to the effect that any knowledge or notice of any kind of restriction or qualification as to the authority of Watts in indorsing the checks restrictively or disqualifiedly, or as to directions for the deposit of the funds after indorsement, was ever given to appellant.

This is not such a case as those of Rensselaer Valve Co. v. Union National Bank, 122 Wash. 494, 210 P. 947, 213 P. 490, and Rensselaer Valve Co. v. National Bank of Commerce, 129 Wash. 253, 224 P. 673, where the banks each permitted misappropriation of funds belonging to the principal after explicit notice of the extent and limits of the authority of the agent, in which we held that recovery could be had of funds so misappropriated after such notice (122 Wash. supra), but not of funds misappropriated before such notice.

The facts in this case give it similitude to our cases of Mott Iron Works v. Metropolitan Bank, 78 Wash. 294, 139 P. 36, and Island Belt S. S. Co. v. J. & M. Café, 103 Wash. 263, 174 P. 19. In the first case cited the principal of the agent involved advised that the agent was authorized to make a restricted indorsement only on checks drawn payable to it; that is, the indorsement, 'For deposit only.' The agent, however, did not follow the instructions, but pursued generally the course of indorsing the checks generally, naming the principal by himself as agent. The bank in that case, which was sought to be held liable for the agent's misappropriation, presented evidence that it knew of no such limitation upon the authority of the agent, and permitted him to make such diversion of the funds which were brought to the bank for deposit as he pleased. Under such evidence, therefore, there was a question of fact for the jury. There was also, as the court said, a question of fact for the jury as to whether or not the funds derived from the particular check in question had not been first credited to respondent's account, and afterwards diverted to the private account of the agent, contrary to the express instructions by respondent. In that case we took occasion to say:

'It is not a general rule of law that an agent having general authority to indorse checks belonging to his principal may not assign title of such check to himself. Nor is it a general rule of law in such a case that, when an agent does indorse a check with his principal's name and offers it for deposit to his private account in a bank, that the bank must inquire as to his authority to so deposit it before accepting the check on the pain of being liable to the principal for the proceeds of the check. An agent having general authority to indorse checks of his principal must of necessity have authority to direct the disposition of the proceeds of the checks. His authority in this respect can of course be limited; but, in the absence of limitations known to the person receiving checks so indorsed, such person has the right to assume that the agent's powers with reference to the disposition of the proceeds of the check are unlimited. One of the purpose of the indorsement is to enable the check to be collected from the payee, and a bank acting as collector of a check indorsed in the payee's name by an authorized agent may, without liability to the principal, turn the proceeds of the check over to any person it is directed so to do by the agent, unless it has knowledge, actual or

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