Valley Nat. Bank of Phoenix v. Electrical Dist. No. Four
| Decision Date | 29 December 1961 |
| Docket Number | No. 6808,6808 |
| Citation | 367 P.2d 655,90 Ariz. 306 |
| Parties | VALLEY NATIONAL BANK OF PHOENIX, a national banking association, Appellant, v. ELECTRICAL DISTRICT NUMBER FOUR, PINAL COUNTY, Arizona, Appellee. |
| Court | Arizona Supreme Court |
Gust, Rosenfeld, Divelbess & Robinette, Phoenix, for appellant.
R. J. Ellis, and Whitney & Whitney, William A. Holohan, Phoenix for appellee.
The appellant will be designated as the 'Bank' and the appellee as the 'District'. The District brought action in the trial court to recover money which had been on deposit in the Casa Grande Branch of the Bank and which had been paid out on checks written by an officer of the District and converted by such officer to his own use. The District is composed of lands in the vicinity of Eloy, Arizona, and was organized under the provisions of the Electrical District Act (A.R.S. § 30-501 et seq.) sometime prior to the year 1947. The account in question was intended by the District to be an inactive or dormant account although the Bank was never advised of that intention.
In 1947 a 'Corporate Resolution' signature card was filed with the Bank showing one Lloyd Buntz as treasurer, as the only person authorized to sign checks on behalf of the District. Sometime prior to this period the board of directors of the District employed one Harry v. Kerrick as their secretary to do the District accounting work and to handle other business of the District. His office in Eloy was used as headquarters for the District, all records were kept there and all mail received there. Most of the board meetings were held in that office.
On or about July 2, 1951, following a change in the membership of the five-man board of directors, the District caused a new signature card containing the usual corporate resolution to be filed with the Bank. The names of the following persons appeared thereon as having been authorized to sign checks on behalf of the District:
John F. Nutt President
H. V. Kerrick Acting Secretary to the Board
Frank W. Shedd, Jr. Secretary
H. V. Kerrick was never a member of the board of directors of the District and he was never authorized by the board to sign checks for the District. After the signature card had been signed by the other officers and given to him for filing, Kerrick typed his name in on one blank space and wrote his signature on another showing himself to be authorized by the board to sign checks on the account, and delivered the same to the Bank. The Bank made no effort to ascertain whether Kerrick was a member of the board of directors of the District.
Commencing in December, 1951, Kerrick began to write checks on the account payable to himself or others. Before his actions were discovered in September, 1956, he had written, and the Bank had paid about 45 checks in an aggregate amount of $30,795.56. He had used blank checks which had been printed by the District sometime previous and which had the word 'Treasurer' printed under the line for signature. He did not otherwise indicate the capacity in which he signed the checks. At no time were more than two or three checks written in one month. During this same period there were numerous deposits of funds of the District to this account.
In September of 1956, the treasurer of the District, Mr. Shay, first became aware of some possible irregularities in the District's Bank accounts. A board meeting was called resulting in an audit which lead to the discovery of Kerrick's defalcations. Embezzlement charges were filed against Kerrick to which be entered a plea of guilty and in the spring of 1957 he was sentenced to serve a term in the state prison.
None of the members of the board of directors or officers of the District had ever personally made any investigation of Kerrick's background, record or experience; and none of them had, during the period from July, 1951 to September, 1956, ever examined the cancelled checks or bank statements regularly mailed by the Bank to the District. During the period in question the Bank mailed to the District at the address shown on the signature card, regular monthly statements of its account, together with cancelled checks which had been paid and charged to the account. At the time of the audit a large number of monthly bank statements sent out by the Bank were found unopened in the District's files at Kerrick's office. None of the cancelled checks drawn by Kerrick had been seen by the officers until the 1956 audit. The last prior audit of the District was in the year 1949.
The Bank employed approximately 25 persons during this period at its Casa Grande branch office, at least 10 of whom were tellers and bookkeepers. They handled an average of 4,000 checks per day and checks in the amount of $1,000 to $2,000 were not considered unusual in the regular course of business.
After discovering the fraudulent withdrawals from its account, the District made demand on the Bank for payment to the District of $30,795.56. The Bank refused payment on the ground that it had a regular signature card with corporate resolution thereon, signed by the corporate officers authorizing Kerrick to sign checks on behalf of the District. The trial court ordered judgment for the District in the amount prayed for in its complaint.
By its assignments of error and propositions of law, the Bank urges this Court to reverse the judgment for the following reasons:
(1) That a contributing cause of the District's loss and damage was it own negligence in placing in the hands of its employee, for delivery to the Bank, a signature card upon which a blank line was left where the employee could, and did, without authority, write in his own name, as one of those authorized to draw checks on the account; that the District having caused the Bank to rely on the representations of the signature card and pay the unauthorized checks, is now estopped to recover its loss from the Bank.
(2) That even in the absence of statute it is the duty of a depositor to examine statements and cancelled checks returned to it and report irregularities, and the board of directors of the District, having negligently failed to examine the vouchers and statements received from the Bank and having failed to notify the Bank of any inaccuracies or irregularities within a reasonable time after receipt of same, over a period of five years is now estopped to recover from the Bank its losses occasioned by its own negligence.
(3) That under the provisions of A.R.S. §§ 6-262 and 6-264 the District cannot in any event recover with respect to those checks which were paid by the Bank and returned to the District with a statement of account showing the corresponding debit entries, without any objection or protest by the District within six (6) months from rendition of the account. These sections read as follows:
' § 6-262. Bank liability for payment of forged, altered or raised checks.
'A. A bank doing business in this state which has paid and charged to the account of a depositor any money on a forged, altered or raised check issued in the name of the depositor shall not be liable to the depositor for the amount paid thereon, unless the depositor notifies the bank that the check so paid is forged, altered or raised:
'1. Within six months after notice to the depositor that the vouchers representing payment charged to the account of the depositor for the period during which the payment was made are ready for delivery, or
'2. In event notice has not been given within six months after return to the depositor of the voucher representing the payment.
'B. The notice referred to in this section may be given by mail to the depositor at his last known address with postage prepaid.
' § 6-264. Final adjustment of bank statements of account.
'When a statement of account has been rendered by a bank to a depositor accompanied by vouchers, if any, which are the basis for debit entries in the account, or the depositor's passbook has been written up by the bank showing the condition of the depositor's account and delivered to the depositor with like accompaniment of vouchers, if any, the account shall, after the period of six months from the date of its rendition, in the event no objection has been theretofore made by the depositor, be deemed finally adjusted and settled and its correctness conclusively presumed, and the depositor is thereafter barred from questioning the correctness of the account for any cause.'
The Bank's contention outlined in No. (1) above, is summarized in its brief as follows:
Whether the conduct of the District amounted to negligence would depend of course, on all the surrounding facts and circumstances relating to the transaction. In making this determination the crucial question is whether the members of the board as reasonable men, should have anticipated or foreseen that Kerrick would take advantage of the blank spaces to wrongfully insert his own name and fraudulently cash unauthorized checks for his own use. There was no evidence of any fact or circumstance which would serve as notice to the members of the board that Kerrick was not trustworthy. He had been secretary of the board for many years and the board members as well as other people in the community had confidence in him. He had a good reputation in the community. Under these circumstances, the trial judge was justified in finding no negligent conduct on the part of the board members in permitting Kerrick to deliver the...
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