Travelers Indem. Co. v. Center Bank

• Decision Date: 06 February 1979
• Docket Number: No. 41811,41811
• Parties: , 25 UCC Rep.Serv. 1124 The TRAVELERS INDEMNITY COMPANY, a corporation, assignee, Appellant, v. The CENTER BANK, a corporation, Appellee.
• Court: Nebraska Supreme Court

Page 73

275 N.W.2d 73

202 Neb. 294, 25 UCC Rep.Serv. 1124

The TRAVELERS INDEMNITY COMPANY, a corporation, assignee, Appellant, v. The CENTER BANK, a corporation, Appellee.

No. 41811.

Supreme Court of Nebraska.

Feb. 6, 1979.

Syllabus by the Court

1. Before a bank is liable in negligence to a maker for accepting a check from an agent or employee of the maker who has obtained the check from the maker by giving to the maker the name of the payee, not intending the payee to have any interest in the check, it must appear that the bank either was placed on such notice as would justify one in believing that further investigation was necessary or otherwise in some manner acted, in accepting the check, in a commercially unreasonable manner.

2. One is not negligent in failing to perform an act which it did not in the first instance have a duty or obligation to perform.

3. "Proximate cause," as used in the law of negligence, is that cause which in the natural and continuous sequence, unbroken by an efficient intervening cause, produces the injury and without which the injury would not have occurred.

4. Even where conduct is negligent, it is still required that the conduct be a substantial factor in bringing about the harm. Causation in this sense inevitably involves the idea of responsibility, and it is not enough that the harm would not have occurred had the individual defendant not been negligent.

Daniel J. Duffy and Patrick B. Donahue of Cassem, Tierney, Adams & Gotch, Omaha, for appellant.

Ronald H. Stave, Michael P. Cavel, Lee H. Hamann of the Law Offices of Emil F. Sodoro, P. C., Omaha, for appellee.

Heard before KRIVOSHA, C. J., BOSLAUGH and BRODKEY, JJ., and RONIN and NORTON, District Judges.

KRIVOSHA, Chief Justice.

This is an action based upon the alleged negligence of the appellee bank in failing to know or ascertain the identity and authority of its depositor establishing an account with it under a corporate name. In response to the appellant's first amended petition, the appellee filed a demurrer. The trial court sustained the demurrer and dismissed appellant's petition. Appellant thereafter appealed to this court. We affirm.

Appellant alleged in its first amended petition that it was the assignee of the Nebraska Consolidated Mills Company (Nebraska Consolidated). The petition alleged that in June of 1969 a certain checking account was established at the appellee bank by one William Piper in the name of C. C. Leasing Company. It was further alleged that at that time, said William Piper was an employee of Nebraska Consolidated and his duties included handling Nebraska Consolidated's leasing program in relation to the fixed asset area. The petition alleged, however, that Piper was not acting as an agent or employee of Nebraska Consolidated in establishing said account.

Subsequently, it was alleged that the said Piper induced Nebraska Consolidated to issue certain checks made payable to a third party and further induced Nebraska Consolidated to deliver the same to Piper. Thereupon, without authority, Piper supplied the endorsements of the third party-payee (C. C. Leasing Co.) and deposited said checks in the appellee bank checking account opened by Piper in the name of C. C. Leasing Co. The petition further alleged that in turn he, Piper, transferred the money out of said account and used the funds for his own personal ventures, none of which were authorized by Nebraska Consolidated nor were for the benefit of Nebraska Consolidated.

Finally, the petition alleged that the appellee "by its negligence, proximately caused Nebraska Consolidated Mills Company to suffer the loss of said funds by its negligence hereinafter more fully set out: (A) Its failure to make reasonable and proper inquiry as to Piper's authority to make use of such checks of Nebraska Consolidated Mills Company; (and) (B) to make reasonable and proper inquiry of Piper's authority to act for the payee named on each of said checks."

Appellant acknowledges that under the provisions of section 3-405, U.C.C., the defendant bank is absolved of all liability for accepting the endorsement of Piper on the Nebraska Consolidated checks. Section 3-405, U.C.C., provides: "(1) An endorsement by any person in the name of a named payee is effective if * * * (c) an agent or employee of the maker or drawer has supplied him with the name of the payee intending the latter to have no such interest."

Appellant maintains that although the above referred to provisions of the Uniform Commercial Code absolve the bank under normal conditions, nevertheless, the bank may still be liable to Nebraska Consolidated for an action sounding in tort based upon the bank's negligence.

It is true that there are cases which may be found to the effect that the protection of section 3-405, U.C.C., does not overcome the negligence of a bank. Notwithstanding the provisions of section 3-405, U.C.C., a bank may nevertheless be liable to a drawer when it, the bank, has acted negligently. However, a reading of those cases discloses that before such negligence may arise there must be some showing that the bank was either placed on such notice as to require further investigation or acted in a manner which was commercially unreasonable. Employers' Liability Assurance Corp., Ltd. v. Hudson River Trust Co., 250 App.Div. 159, 294 N.Y.S. 698; Wright v. Bank of California, 276 Cal.App.2d 485, 81 Cal.Rptr. 11; Scottsbluff Nat. Bank v. Blue J Feeds, Inc., 156 Neb. 65, 54 N.W.2d 392, American Surety Co. v. Smith, Landeryou & Co., 141 Neb. 719, 4 N.W.2d 889.

In the absence of such facts, a bank is not considered negligent in accepting deposits with forged endorsements where the agent or employee of the maker or drawer has supplied the maker or drawer with the name of the payee intending the latter to have no such interest.

The justification for such rule is set out in note four following section 3-405, U.C.C., as follows: "Paragraph (c) is new. It extends the rule of the original subsection 9(3) to include the padded payroll cases, where the drawer's agent or employee prepares the check for signature or...