Schaap v. First National Bank of Fort Smith

• Decision Date: 09 December 1918
• Docket Number: 26
• Citation: 208 S.W. 309,137 Ark. 251
• Parties: SCHAAP v. FIRST NATIONAL BANK OF FORT SMITH
• Court: Arkansas Supreme Court

208 S.W. 309

137 Ark. 251

SCHAAP v. FIRST NATIONAL BANK OF FORT SMITH

No. 26

Supreme Court of Arkansas

December 9, 1918

Appeal from Sebastian Circuit Court, Fort Smith District; Paul Little, Judge; reversed.

STATEMENT OF FACTS.

John Schaap brought suit in the municipal court of Texarkana Arkansas, against the State National Bank of Texarkana, to recover on certain checks which he alleges belonged to him and which were collected by the bank and held by it after demand made by him for the amounts so collected. John Schaap also brought suit against the First National Bank of Fort Smith before a justice of the peace to recover upon certain checks of which he was the holder which had been collected by the bank and payment refused to him.

The material facts in each case are nearly the same and the issues of law raised by the appeal in number 5549 will be decisive of case number 5486. Therefore the cases were consolidated for the purpose of being briefed on appeal and one opinion will suffice for both cases. Each case was appealed to the circuit court. The facts upon which the cases were tried in the circuit court are substantially as follows John Schaap resides in Fort Smith, Arkansas, and has there conducted for thirty-five years a wholesale drug business under the name of John Schaap & Sons Drug Company. E. H Slates was employed by him as a traveling salesman from October, 1914, to March, 1916, inclusive. His duties were to sell drugs and collect past due accounts from customers; but he had no authority to indorse checks given in payment of accounts or other indebtedness to the drug company. During the course of his employment, Slates received checks to the amount of over $ 3,000 which customers had given him and for which they had received no credit on the books of the drug company. Slates received many other checks given him by customers in payment of accounts due the drug company and he sent in these checks to the drug company. He also collected cash and remitted it to the drug company. His collections amounted to about five or six hundred dollars per week. During the latter part of March, 1916, John Schaap discovered that Slates had collected a check drawn in his (Schaap's) favor in payment of a drug account and had appropriated the proceeds to his own use. As soon as this was discovered Slates left the country and his present whereabouts are unknown. Prior to that time Slates was indorsing checks given to him by customers in payment of their accounts and collecting them and appropriating the proceeds to his own use. The extent to which Slates had done this was ascertained by investigation upon the part of Schaap after Slates had fled the country in the latter part of March, 1916.

In case Number 5486, the record shows that Slates at various times took checks given by seven different customers of the drug company in payment of their accounts to local banks and cashed them. These banks then sent the check to the State National Bank of Texarkana for collection and the bank collected them and appropriated the proceeds to its own use. Each of these checks was drawn to the order of John Schaap & Sons Drug Company, or John Schaap & Sons, and each was indorsed John Schaap & Sons Drug Company or John Schaap & Sons, "per E. H. Slates."

In case Number 5549, the record shows that Slates received checks for various amounts from sixteen customers of John Schaap in payment of their accounts to his drug company. Each of these checks was drawn in favor of John Schaap & Sons Drug Company or John Schaap & Sons, and each was indorsed John Schaap & Sons Drug Company, or John Schaap & Sons, "per E. H. Slates." Slates presented five of these checks at different times to the First National Bank of Fort Smith and the bank paid to Slates the several amounts for which these checks were drawn and he appropriated the money to his own use. The bank officials collected the amounts of these checks from the banks on which they were drawn. The remaining eleven checks were sent to the defendant bank for collection by other banks which had cashed them for Slates and which had sent them in to the defendant bank.

In case number 5486 the court directed a verdict for the defendant bank and the plaintiff has appealed.

In case number 5549, a jury was impaneled to try the case and the foregoing evidence was introduced before it. After the taking of the evidence was completed, counsel for both parties agreed to withdraw the case from the jury and to submit it to the court sitting as a jury. The plaintiff requested the court to make declarations of law which the court refused to make. The defendant also requested the court to make certain declarations of law, which the court refused to make. The court rendered judgment for the plaintiffs for the amount of the five checks which the bank had cashed for E. H. Slates and afterwards collected from the banks on which they were drawn; and rendered judgment in favor of the defendant as to the amounts collected by the defendant bank on the eleven checks sent to it by other banks which checks it had collected and accounted for to the banks which had sent them. This case is also here on appeal.

Judgment reversed and cause remanded.

Winchester & Martin, for appellant.

1. Slates had no authority to sign appellant's name or to indorse and collect the checks. The bank is liable and the court erred in its instructions. Neg. Inst. Act, Acts 1913 §§ 23, 85; 129 Ark. 350; 98 Id. 1; 100 Id. 537; L. R. A. 1917 A. 145; 15 L. R. A. (N. S.) 519; Bowers on Conversion, §§ 54-57; 110 Ark. 578; 100 Am. Dec. 324, 452; 72 Ark. 504; 12 Id. 644.

See also 98 Ark. 1; 15 L. R. A. (N. S.) 519; 94 U.S. 343.

2. There is no question of privity here. Plaintiffs action is based on the fact that defendant has collected money due him and that the law implies a contract that it will pay it over to him. 110 Ark. 578; 11 Id. 270; 22 Id. 68; 65 Id. 222; 29 Minn. 238; 13 N.W. 42. Either that or as for conversion. The actions are closely akin. Trover is maintainable against a defendant who has converted a check, etc. 60 Am. St. 411.

3. Defendant was put on notice by the indorsement. Carelessness or negligence is inexcusable and indefensible. 97 U.S. 369.

4. It was error to refuse plaintiff's instructions. The checks belonged to plaintiff. They were not indorsed by him nor by one having authority. Defendant must take notice. Plaintiff was entitled to recover and the lower court erred. 73 S.W. 1129; 70 N.W. 34; 130 Am. St. 241; 13 L. R. A. (N. S.) 211; 98 Ind. 85; 1 Hill (N. Y.) 295; 6 Hun. (N. Y.) 124; 68 N.Y. 616; 19 Oh. St. 526; 131 S.W. 447; 47 Id. 234; 7 L. R. A. 93; 32 Id. 778; 155 N.W. 78; 20 Oh. St. 234; 17 N.Y. 207; 93 Am. St. 113; 10 Id. 249.

5. It was error to admit the two canceled checks of Boyer Drug Co. and statement of account of same. Only a question of law is presented. Defendant had notice of the forgeries and appellant should have judgment for the amount of the checks and interest.

William H. Arnold, for appellee. W. H. Arnold, Jr., and David C. Arnold, of counsel.

1. Slates had authority to collect accounts and cash the checks. Where one of two innocent parties must suffer a loss, it should be borne by the one who put it in the power of the agent to commit the wrong. Appellant must be presumed to have known how the agent was handling the business. 129 Ark. 353. Slates did not violate his authority. He acted in the usual course of his authority from his employers and within its scope. He had the right to collect and incidentally to cash checks. 49 Ark. 320; 48 Id. 145; 100 Id. 325; 46 Id. 216.

2. The payee of a check cannot sue the bank upon which it is drawn without the acceptance by the bank, and further the giving of the check does not operate as an assignment of funds in the bank to the credit of the drawer and the payment of the check upon a forged indorsement does not operate as an acceptance. There are cases holding to the contrary, but they are in conflict with the great weight of authority. The Arkansas decisions deny appellant's right to recover. No recovery can be had against a bank without notice. There was no conversion by appellee of appellant's money. If the money was not paid by the drawee bank upon a valid indorsement then the status of drawee's account remains unaffected. 94 U.S. 343; 98 Ark. 1. See also 100 Ark. 537; 202 S.W. 834; 15 L. R. A. (N. S.) 519; 69 A. 280; 71 Mo.App. 137; 143 Ill.App. 625.

3. The remedy is not against the bank but against the party drawing the checks. 129 Ark. 353.

Harry P. Daily, also for appellee.

1. The court had no jurisdiction. The jurisdiction of a justice of the peace is limited to $ 300.

2. Slates was authorized to cash the checks. Schaap is not entitled to recover from anyone, as he placed the opportunity in the hands of Slates to commit the fraud. He had the authority to sell and collect.

3. Schaap cannot recover from the bank. 98 Ark. 1; 100 Id. 537; 202 S.W. 834; 94 U.S. 343. The bank paid the checks to the holder and charged the drawer's account. Any loss should fall on him. 24 U. S. Lawy. Co.-Op. Ed. 229-231; 88 Tenn. 381; 7 L. R. A. 93.

4. The bank was neither the payee nor the bank to which Slates presented the checks for payment, but it merely acted as a conduit. This is the point as to eleven of the checks. Schaap cannot recover. 157 P. 202; L. R. A. 1917 A. 145; 70 F. 232; 100 Tenn. 187; 47 S.W. 234; 123 Tenn. 364; 73 S.W. 1129; 88 Tenn. 381; 7 L. R. A. 93. The cases cited for appellant do not apply. 69 A. 280 is against the weight of authority. 69 A. 280.

5. Schaap cannot sue the drawers of these checks. 129 Ark. 350; 171 Mass. 516; 110 A.D. 236; 186 N.Y. 611.

6. A recovery cannot be had on the eleven checks, nor on the five. See argument of co-counsel Mr....