Weaver Const. Co. v. Farmers Nat. Bank of Webster City

• Decision Date: 12 June 1962
• Docket Number: No. 50575,50575
• Citation: 115 N.W.2d 804,253 Iowa 1280
• Parties: WEAVER CONSTRUCTION COMPANY, Appellee, v. FARMERS NATIONAL BANK OF WEBSTER CITY, Iowa, Appellant.
• Court: Iowa Supreme Court

Page 804

115 N.W.2d 804

253 Iowa 1280

WEAVER CONSTRUCTION COMPANY, Appellee, v. FARMERS NATIONAL BANK OF WEBSTER CITY, Iowa, Appellant.

No. 50575.

Supreme Court of Iowa.

June 12, 1962.

Hemingway & Hemingway, Webster City, and Lynch, Dallas, Smith & Harman, Cedar Rapids, for appellant.

Oppen & Wessels, Iowa Falls, and Mitchell, Mitchell & Murray, Fort Dodge, for appellee.

GARFIELD, Chief Justice.

This is a law action, tried without a jury, by Weaver Construction Company against defendant Farmers National Bank of Webster City to recover proceeds of checks belonging to plaintiff, endorsed and cashed at defendant bank by Reynolds, plaintiff's local manager, who then appropriated the cash to his own use. From judgment for plaintiff for much, but not all, of its claim defendant has appealed.

Plaintiff is a corporation with its main office near Alden, Iowa. In 1950 it constructed a plant in Webster City for the production of ready-mix concrete under the name Weaver Ready-Mix. Giles was in charge of the plant as local manager from the beginning until May, 1956, when Reynolds succeeded him. About September 20, 1950, plaintiff opened an account in defendant bank in which funds received by the Webster City plant were to be deposited.

Plaintiff claims, and the trial court found, that only its officers could draw on the account and the local manager was without authority to do so. Plaintiff furnished the bank signature cards of the officers who were authorized to draw on the account. The names of Giles or Reynolds were not included. The bank furnished Giles a rubber stamp for endorsing checks which contained the words 'for deposit only.' In depositing checks in the account Giles endorsed them with the stamp except in a few instances not now material.

Reynolds also used the stamp to endorse substantially all checks for about the first 18 months of his employment in Webster City and continued to use the stamp to endorse checks he deposited in the account. In late 1957 or early 1958, however, the bank permitted him to cash some of the checks without using the stamped endorsement and he appropriated the proceeds to his own use. These checks were never credited to plaintiff's account. Reynolds continued this practice of receiving cash for some of the checks, without depositing them to Weaver's account, and misappropriating the cash until plaintiff discovered his defalcations in October, 1959.

Throughout the time Giles and Reynolds were managers at Webster City the payroll and other bills there incurred were paid from the home office near Alden except for some small bills paid from a petty cash fund at Webster City. Monthly statements to customers of the Webster City plant were sent to Giles and Reynolds from Alden and by them mailed to the customers who in turn paid the account at Webster City. Most of the accounts, except some smaller ones, were paid by check. When Reynolds received from Alden a statement of an account he had collected and misappropriated in whole or part he would either not send the statement to the customer or change it, before doing so, to show the amount the customer had not paid.

Reynolds prepared deposit slips for the deposits before taking them to the bank and did not include in them the checks on which he secured the cash at the bank. He sent the Alden office a copy of each deposit slip showing the correct total deposited. Defendant sent monthly statements of the account to the Alden office. Printed on each statement was a provision it would be considered correct if errors or differences were not reported within 10 days. No report of any error or difference was made. The statements listed only the total of each deposit, not the items comprising it, nor the checks on which Reynolds procured the cash.

I. Our review is not de novo. The trial court's findings of fact have the effect of a jury verdict and are conclusive upon appeal if supported by substantial evidence. Rule 334, Rules of Civil Procedure, 58 I.C.A.; Harlan Production Credit Ass'n v. Schroeder Elev. Co., 253 Iowa ----, 112 N.W.2d 320, 322; Ritchie v. Hilmer, 251 Iowa 1002, 1004, 103 N.W.2d 858, 859, and citations.

II. Defendant's first assigned error is that there is no evidence to support the finding Reynolds was without authority to endorse checks payable to plaintiff except for deposit to its account. We think there is substantial evidence to support this finding. The question is one of actual authority. No reliance is now placed on a claim of apparent authority.

Giles testified plaintiff instructed him to open in defendant bank a depository account only; he so informed the bank president; when the account was opened there was talk about a stamp for endorsing checks; the bank furnished the stamp containing the words 'for deposit only'; this stamp was used exclusively in endorsing checks for deposit in plaintiff's account; Giles had no authority to withdraw from the account and made none. It is fairly to be inferred that only plaintiff's officers who signed signature cards for the bank were authorized to make withdrawals. As stated, Reynolds used the stamp for endorsing checks for a considerable time after he succeeded Giles but did not use it later on the checks he cashed and appropriated to his own use.

Apparently the first time Reynolds cashed a check payable to plaintiff, rather than to deposit it to plaintiff's account, the teller who waited on him doubted his authority to do so, for she asked the cashier whether she should give Reynolds the cash on the check. Only after the cashier approved doing so was Reynolds given cash for the check. This was contrary to the custom that had prevailed for about seven years. After that it 'came down through the grapevine in the bank it was all right to give Reynolds cash.' One of the checks the bank permitted Reynolds to cash was for $2700. The excuse he gave the bank for cashing checks was that the money was needed to pay bills incurred by the Webster City plant. But, as stated, these bills were paid from the Alden office and the finding is warranted the bank knew, or should have known, this.

Defendant's cashier testified, 'Our arrangement are the same now as they were before. We have been told now what to do, that is that the local manager is not to cash the checks.'

No difficult or doubtful question of law is involved at this point. There is clear evidence Reynolds was without actual authority to draw on plaintiff's account or, to accomplish the same result, by receiving cash from defendant for checks payable to plaintiff which he was to endorse for deposit and deposit in the account. It is conceded defendant knew Reynolds was not authorized to draw on the account but it is argued it did not know Reynolds was to deposit the checks in the account rather than to cash them.

Effect of the argument is that defendant did not know Reynolds could not do indirectly, by cashing checks payable to plaintiff, what it knew he could not do directly, by drawing on plaintiff's account. Beacon Chocolate Co. v. Bank of Montreal, 7th Cir., Ill., 14 F.2d 599, 600 (cert. den. 273 U.S. 744, 47 S.Ct. 336, 71 L.Ed. 870). It is sufficient to say there is evidence to support the trial court's finding the bank was aware of this limitation upon Reynolds' authority. It was in accordance with the arrangement for the account at the time it was opened and the practice that prevailed for many years thereafter until Reynolds turned embezzler.

The present case is somewhat like Brannen v. State Exchange Bank, 190 Iowa 630, 635, 637, 180 N.W. 886, 888, although the bank there was more culpable than defendant here. These two sentences from the cited opinion may be repeated: 'It is elementary that the act of an agent not within the scope of his authority does not bind his principal. * * * A court must be governed by the principles of the law, and not by the hardships of any case to which those principles apply.'

Several precedents of this kind are cited in Annos. 12 A.L.R. 111, 115; 94 A.L.R. 555, 557, and 37 A.L.R.2d 453, 464. See Beacon Chocolate Co. v. Bank of Montreal, supra, 7th Cir., Ill., 14 F.2d 599 (distinguishing Santa Marina Co. v. Canadian Bank of Commerce, 9th Cir., 254 F. 391, cited by defendant); Merchants' & Manufacturers' Ass'n v. First Nat. Bank, 40 Ariz. 531, 14 P.2d 717; National Union Bank v. Miller Rubber Co., 148 Md. 449, 129 A. 688; Wagner Trading Co. v. Battery Park Nat. Bank, 228 N.Y. 37, 126 N.E. 347, 9 A.L.R. 340, and Anno. 346; Industrial Plumbing & Heating Supply Co. v. Carter County Bank, 25 Tenn.App. 168, 154 S.W.2d 432 9 C.J.S. Banks and Banking § 354e, page 726, states: 'However, the bank will be liable for losses resulting to such a (corporate) payee for permitting its representative to deposit the check to his personal account, knowing that he is without authority.'

7 Am.Jur., Banks, § 526: 'It is well settled generally that the signature upon which a depositor is to be bound and the bank is to be authorized to disburse his money may be whatever they agree on.'

See also Restatement Agency 2d § 311.

The precedents defendant cites in support of this assigned error are distinguishable on the facts.

III. Error is asserted in the trial court's holding no account stated resulted from plaintiff's failure to object to the monthly bank statements. This holding was placed upon two grounds. First, plaintiff is not objecting to the statements; the checks the bank charged against the account and the deposits credited to it were for the correct amounts; the balances were correct; plaintiff is objecting to unauthorized payments by defendant of items which never went into or through the account. Second, the items making up each deposit were not stated; plaintiff did not know the true items that should have been credited to its account; it therefore did not agree to those items.

Defendant argues plaintiff was charged with knowledge of the checks Reynolds received and failed to...