Union Indemnity Co. v. Home Trust Co.

• Decision Date: 13 April 1933
• Docket Number: No. 9608.,9608.
• Citation: 64 F.2d 906
• Parties: UNION INDEMNITY CO. v. HOME TRUST CO.
• Court: U.S. Court of Appeals — Eighth Circuit

64 F.2d 906 (1933)

UNION INDEMNITY CO. v. HOME TRUST CO.

No. 9608.

Circuit Court of Appeals, Eighth Circuit.

April 13, 1933.

C. V. Garnett, of Kansas City, Mo. (Paul Barnett and Watson, Ess, Groner, Barnett & Whittaker, all of Kansas City, Mo., on the brief), for appellant.

Harry L. Jacobs, of Kansas City, Mo. (I. J. Ringolsky, William G. Boatright, and Ringolsky, Boatright & Jacobs, all of Kansas City, Mo., on the brief), for appellee.

Before KENYON, GARDNER, and SANBORN, Circuit Judges.

SANBORN, Circuit Judge.

This is an appeal from a judgment entered upon the verdict of a jury in an action at law brought by the appellee against the appellant upon a fidelity bond. The parties will be referred to as in the court below.

In 1923 C. R. Burrell became a vice president and director of the plaintiff, Home Trust Company. He was in charge of the plaintiff's transactions with some forty correspondent banks in the Kansas City territory. Through Burrell the plaintiff sold promissory notes to these banks. In 1925 Burrell was interested in the Thomas Southard Company of St. Joseph, Mo. In order to finance this company, he, without authority from the plaintiff, loaned the plaintiff's money upon the Southard Company's notes, which he sold to the plaintiff's correspondent banks. In 1927 the Southard Company became utterly insolvent. In order to conceal his misconduct, Burrell substituted other notes for those of the Southard Company as they matured and were returned by the correspondent banks to the plaintiff for collection. These substitute notes, or at least such of them as we are here concerned with, were forgeries. These forged notes were indorsed in the name of the plaintiff without recourse by Burrell as its vice president. On April 10, 1931, when Burrell's wrongdoing was discovered, the plaintiff redeemed this forged paper.

The plaintiff also took up, upon demand of its correspondent, Tonganoxie State Bank, three notes which had been sold to it by Burrell. These notes are known as the Cooper, the Swearingen, and the Bramwell notes.

The Cooper note was for $5,000, was dated October 1, 1930, due April 1, 1931, payable to the order of the plaintiff, signed by Cooper, and indorsed, "Without recourse, Home Trust Company by C. R. Burrell, V. P." The Tonganoxie Bank had received the note from Burrell accompanied by a statement of Cooper's financial condition. Cooper had signed the note for the accommodation of Burrell, although he did not know that it was payable to the plaintiff. At the time of trial, Cooper was indebted to the plaintiff for $17,000, which was past due and which it was unable to collect. The Cooper note never belonged to the plaintiff and was never shown upon its books.

The Swearingen note was for $3,080, dated March 11, 1931, due September 11, 1931, and was payable to the plaintiff. It was indorsed in the same way as the Cooper note and sold to the Tonganoxie Bank by Burrell. It had not belonged to the plaintiff and was not shown upon its records. At the time of trial, Swearingen owed the plaintiff $150, which was said by its president to be uncollectible.

The Bramwell note was for $4,850, dated January 19, 1931, due April 19, 1931, payable to the plaintiff, and was indorsed and sold, in the same way as the Cooper and Swearingen notes, to the Tonganoxie Bank. Bramwell in 1927 had been indebted to the plaintiff in the sum of $11,000. This indebtedness was criticized by the examiners; it was removed from the assets of the plaintiff by its officers, and has never been collected. Bramwell testified that he signed the note to cover indebtedness to Burrell and that he did not notice that it was payable to the plaintiff. The note never belonged to the plaintiff and never appeared upon its records.

Burrell's irregularities were discovered about April 10, 1931. A fidelity bond given by the defendant indemnity company insured the plaintiff against direct loss, in an amount not exceeding $50,000, sustained through any dishonest acts of its officers, clerks, or other persons in its immediate employ. The defendant was given immediate oral notice of Burrell's defalcations, which was followed, on April 15, 1931, by written proof of loss. Two adjusters of the defendant called shortly thereafter. The defendant's auditor called some two months later. The plaintiff turned over its books to him and gave to him all available information. On June 5, 1931, the defendant informed the plaintiff that in its opinion the losses were not covered by the bond. The plaintiff brought suit on September 18, 1931.

The complaint contained eleven counts. The first eight alleged losses from the redemption of the forged paper sold to the correspondent banks by Burrell. The last three counts alleged losses from the redemption of the Cooper, Swearingen, and Bramwell notes. The plaintiff asked for judgment for each of the alleged losses and for damages and attorney's fees for vexatious refusal to pay, under R. S. Missouri 1929, § 5929 (Mo. St. Ann. § 5929). Upon the trial the defendant admitted liability under the first eight counts of the complaint, namely, those relating to the sale and redemption of the forged paper. It contested its liability, under the last three counts. The verdict of the jury was for the plaintiff on each count, and there was added to the verdict on each count one dollar for vexatious refusal, and attorney's fees of approximately 10 per cent. of the principal sum.

Since liability was admitted as to the first eight counts, the defendant complains of the verdict, so far as it relates to those counts, only with respect to the amounts added for vexatious refusal and attorney's fees.

As to the last three counts, the defendant contends:

1. That Burrell had no authority to bind the plaintiff with respect to the sale of the notes.

2. That the plaintiff was under no legal obligation to redeem the notes.

3. That the evidence was insufficient to justify a finding of vexatious refusal.

4. That error was committed by the court in its instructions in defining "dishonest acts." This contention we regard as without merit, and we shall not discuss it.

Burrell had authority to bind the plaintiff with respect to the sale of the Cooper, Swearingen, and Bramwell notes. The plaintiff was a trust company organized under the laws of Missouri. Section 5451, R. S. Missouri 1929 (Mo. St. Ann. § 5451), prohibits an officer of a trust company, without authority of its board of directors, from pledging or hypothecating any notes, bonds, or other obligations received by the company for money loaned. There is no prohibition against sale by an officer of notes for money loaned or for money not loaned. The contention that section 5451 relating to trust companies should be construed to be coextensive with section 5380 of the same statutes (Mo. St. Ann. § 5380), which prohibits an officer of a bank, without authority of its board, from indorsing notes received for money loaned, we think is unsound. But, even if we were wrong as to this, it appears that section 5380 does not prohibit the sale of a note by an officer under an endorsement without recourse. Stover Bank v. Welpman, 323 Mo. 234, 19 S.W.(2d) 740, where it was held that the inhibition against "indorsing" was not intended to extend to an indorsement, such as one without recourse, which is evidence of a mere sale. See, also, Moseley v. Smith, 223 Mo. App. 1189, 21 S.W.(2d) 637; Welker v. Hayes, 224 Mo. App. 392, 22 S.W. (2d) 1052; Tate v. Farmers' Exchange Bank of Chula (Mo. App.) 37 S.W.(2d) 992.

The general rule is, of course, that a corporation is bound by the acts of its proper officers performed in the regular course of its business and within the scope of their apparent authority. Merchants' Nat. Bank v. State Nat. Bank, 10 Wall. 604, 644, 19 L. Ed. 1008; Martin v. Webb, 110 U. S. 7, 14, 3 S. Ct. 428, 28 L. Ed. 49; Sun Printing & Pub. Ass'n v. Moore, 183 U. S. 642, 650, 22 S. Ct. 240, 46 L. Ed. 366; Jenson v. Toltec Ranch Co. (C. C. A. 8) 174 F. 86, 89; Badders Clothing Co. v. Burnham-Munger-Root Dry Goods Co. (C. C. A. 8) 228 F. 470, 474 (certiorari denied 241 U. S. 678, 36 S. Ct. 727, 60 L. Ed. 1233); Manchester Mill & Elev. Co. v. Strong (C. C. A. 8) 231 F. 876, 881; Ratcliff v. Clendenin (C. C. A. 8) 232 F. 61, 67; El Dorado Refining Co. v. Lientz (C. C. A. 8) 7 F.(2d) 814, 817; Bijur Motor Lighting Co. v. Eclipse Mach. Co. (C. C. A. 2) 243 F. 600, 604; Charles Roesch & Sons Co. v. Mumford (C. C. A. 3) 230 F. 56, 60; In re Lance Lumber Co. (D. C.) 224 F. 598, 601; Id. (C. C. A. 3) 237 F. 357; American Nat. Bank of Sapulpa, Okla. v. Bartlett (C. C. A. 10) 40 F.(2d) 21, 24.

Our conclusion upon this point disposes of all objections to the admissibility of evidence of the extent to which Burrell did bind the plaintiff.

The plaintiff was obligated to redeem these notes upon the demand of the Tonganoxie Bank. The cashier of that bank gave the following testimony with respect to the purchase of these notes: "It was understood through conversations between Mr. Burrell and myself that paper which Tonganoxie State Bank purchased from the Home Trust Company in this manner was to be good, collectible bankable paper, executed by responsible parties for valuable consideration and representing loans made by the Home Trust Company to the makers of the same in the regular course of business, and in ordering and acquiring this paper from the Home Trust Company, Tonganoxie State Bank at all times relied on this understanding and in accepting and paying for all paper it purchased from the Home Trust Company, including all notes mentioned and described in detail in this affidavit, the Tonganoxie State Bank believed that all the notes purchased by it, detailed herein, were of the kind represented and all of the notes and commercial paper acquired by Tonganoxie State Bank in its dealings with Home Trust Company were to be of the class of paper above mentioned and it was understood and...