York v. Smith, Landeryou & Co.

Decision Date10 July 1942
Docket NumberNo. 31278.,31278.
Citation141 Neb. 719,4 N.W.2d 889
CourtNebraska Supreme Court
PartiesAMERICAN SURETY OF NEW YORK v. SMITH, LANDERYOU & CO.

OPINION TEXT STARTS HERE

Appeal from District Court, Douglas County; Day, Judge.

Action by the American Surety Company against Smith, Landeryou & Co., a corporation, to recover the amount of plaintiff's corporate assignor's funds received by defendant from assignor's employee. Judgment for defendant, and from an order overruling plaintiff's motion for a new trial, plaintiff appeals.

Judgment reversed, and cause remanded, with directions.

Syllabus by the Court.

1. Corporate checks, payable to a firm of brokers with which the drawer has no business relations, when tendered to the brokers by an agent or employee of the drawer for his own stock transactions, import ownership of the checks and their proceeds to be in the corporation-drawer.

2. The duty to make proper inquiry as to authority to make use of such checks for such purposes is imposed upon the payee thereof, where the latter, having no dealings with the corporation-drawer, receives these instruments from the employee of the corporation-drawer for the payment of the employee's individual obligations or indebtedness.

3. One who is placed on inquiry as to an agent's or employee's authority, and who has reasonable means of making inquiry, occupies the same position in law as if he had actual knowledge of the employee's lack of authority, because he is charged with knowledge of the facts which the inquiry would have developed.

4. Under the circumstances of this case, the defendant, having imposed upon it the duty of inquiry, and having failed to make such inquiry which, if made, would have disclosed defects and infirmities in the title and ownership of the party from whom the negotiable paper payable to its order was by it received, will be liable to the drawer for failure to hold the proceeds of such paper by it accepted, cashed and disposed of as payee, and cannot avoid the liability so incurred through its default by claiming to be a holder thereof in due course.

5. In an action for conversion, such as is here presented, defendant's care or diligence is not necessarily involved, and plaintiff's negligence, if any, is not material except in so far as it may bear upon the question of estoppel.

6. “To constitute an equitable estoppel, there must exist a false representation or concealment of material facts; it must have been made with knowledge, actual or constructive, of the facts; the party to whom it was made must have been without knowledge or the means of knowledge of the real facts; it must have been made with the intention that it should be acted upon; and the party to whom it was made must have relied on or acted upon it to his prejudice.” Walker v. Ehresman, 79 Neb. 775, 113 N.W.218.

7. A defendant, in an action for conversion, even though not guilty of moral turpitude or intentional wrongdoing, other than such as was involved in its failure to perform a legal duty of inquiry, which, if made, would have disclosed the illegality of the transaction, has no equities or rights which preclude recovery by the plaintiff as assignee, even though plaintiff was a compensated surety.

Young & Williams, of Omaha, for appellant.

Ritchie, Swenson & Welpton and M. J. Flannigan, all of Omaha, for appellee.

Heard before SIMMONS, C. J., and ROSE, EBERLY, PAINE, CARTER, and MESSMORE, JJ.

EBERLY, Justice.

This is an action by the American Surety Company of New York, as assignee, to recover from the defendant, Smith, Landeryou & Company, a corporation, stock brokers, the sum of $10,320, the amount of funds of the Fairmont Creamery Company, a corporation, received by such stock brokers from and in connection with Harold George Gould. Gould, a trusted employee of the Fairmont Creamery Company for more than 25 years, taking advantage of his situation, had unlawfully abstracted this sum from the moneys of his employer without the latter's knowledge or consent, and had used the same in his speculative investments with the defendant company as stock brokers. The principal place of business of the Fairmont Creamery Company, as well as the defendant, was in Omaha, Nebraska. At the times the defalcations in suit herein occurred, Gould, by virtue of his employment together with other duties, was charged with securing the payment of the premiums accruing on the policies of various kinds of insurance taken out and carried by the Fairmont Creamery Company on its property and personnel, as well as on the property and personnel of some forty subsidiary organizations which were operated in connection with it. The general course of business followed may be said to be as follows: Each check issued by the creamery company's cashier was obtained by Gould on presentation of a voucher, or a request for a voucher, signed by himself and to be approved by certain officials of the creamery company, setting forth briefly the nature of the insurance premium to be paid, to whom due, the amount thereof, and a direction that such amount in payment be charged to a certain insurance account set up by the creamery company. Thereupon such checks were duly issued in favor of such creditors, delivered to Gould, and by him transmitted to the party entitled thereto. Taking advantage of his situation and the confidence imposed in him by his employer, Gould had signed and presented false vouchers setting forth that certain sums were due to Smith, Landeryou & Company of Omaha, Nebraska, as insurance premiums, and secured the issuance of “general checks” of his employer, payable to defendant company's order, which the payee named therein disposed of as follows:

+-----------------------------------------------------------------------------+
                ¦        ¦         ¦          ¦               ¦Application                    ¦
                +--------+---------+----------+---------------+-------------------------------¦
                ¦Check   ¦Date of  ¦Amount of ¦Date Rec'd by  ¦Credit Gould's ¦Cash or Check  ¦
                ¦Number  ¦Check    ¦Check     ¦Defendant      ¦Account        ¦to Gould       ¦
                +--------+---------+----------+---------------+---------------+---------------¦
                ¦2346    ¦3/16/35  ¦$2865.00  ¦3/16/35        ¦$2690.00       ¦$175.00        ¦
                +--------+---------+----------+---------------+---------------+---------------¦
                ¦2339    ¦5/7/36   ¦$2845.00  ¦5/7/36         ¦$2450.00       ¦$124.80        ¦
                +--------+---------+----------+---------------+---------------+---------------¦
                ¦        ¦         ¦          ¦               ¦               ¦$270.00        ¦
                +--------+---------+----------+---------------+---------------+---------------¦
                ¦8291    ¦4/6/37   ¦$2985.00  ¦4/6/37         ¦$2822.70       ¦$162.30        ¦
                +--------+---------+----------+---------------+---------------+---------------¦
                ¦24583   ¦8/20/37  ¦$1625.00  ¦8/20/37        ¦$1375.00       ¦$250.00        ¦
                +-----------------------------------------------------------------------------+
                

These checks, duly drawn, were, in the usual course of business, delivered to Gould for transmission and each by him delivered to Smith, Landeryou & Company in Omaha, Nebraska, as purchase price of stocks by him purchased therefrom, and as part of these transactions he received a portion of the moneys represented by such checks in cash as above stated. It may be said that while Smith, Landeryou & Company accepted these checks payable to its order in payment of stocks purchased by Gould as an individual and for his individual profit and advantage, and knew he was an employee of the corporate maker of such checks, it had no knowledge at such times of the course of business which led up to the issuance of the checks so received by it, or of the general methods of the Fairmont Creamery Company in the transaction of its affairs, or of the rules prescribed for its government, or of the method followed by it in keeping its accounts. Defendant company did know that it had no stock transactions with the creamery company and that the latter was not indebted to defendant stock brokers in any sum whatever. The plaintiff as surety for said Gould, having given the Fairmont Creamery Company its fidelity bond insuring that company against fraud and embezzlement of said Gould, accordingly by the terms of such bond paid to the creamery company the amount of the loss occasioned by Gould's peculations herein set forth, to the extent of $10,000, and received in consideration thereof an assignment from the creamery company in writing of “its claim or claims and all the right, title and interest” which it has in and to any claim or claims against Harold George Gould and against Smith, Landeryou & Company created by the transactions hereinbefore referred to. Demand is alleged to have been made on defendant for reimbursement for the amounts thus received by it.

To the petition of plaintiff setting forth at length and with particularity the transactions hereinbefore referred to, defendant joined issue. A trial in the district court, a jury being waived, resulted in findings and judgment for defendant. From the order of the trial court overruling its motion for a new trial, plaintiff appeals.

The checks here involved are the usual bank checks which are within the terms of the statutory definition. They are negotiable instruments, each signed by the Fairmont Creamery Company, a corporation, as maker, containing an unconditional order to pay a certain sum of money to the order of Smith, Landeryou & Company, a corporation, as payee, and addressed to the drawee named therein, the Omaha National Bank, Omaha, Nebraska.

A similar question presented to the supreme court of Washington in Bowles Co. v. Clark, 59 Wash. 336, 109 P. 812, 813, 31 L.R.A.,N.S., 613, was answered as follows:

“The question presented by the record is indeed somewhat novel, but it has seemed to us that it cannot be solved by reference to the laws relating to negotiable instruments. The respondent was in no sense a purchaser of the check,...

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4 cases
  • American Sur. of New York v. Smith, Landeryou & Co.
    • United States
    • Nebraska Supreme Court
    • 10 Julio 1942
  • Indemnity Insurance Co. v. Lane Contracting Corp.
    • United States
    • U.S. District Court — District of Nebraska
    • 5 Marzo 1964
    ...made must have relied on or acted upon it to his prejudice.' Walker v. Ehresman, 79 Neb. 775, 113 N.W. 218." American Surety Co. of N. Y. v. Smith, Landeryou & Co., 141 Neb. 719, (Syl. 6), 4 N.W.2d 889, The Nebraska doctrine of estoppel was applied in Cotner College v. Estate of Hester, 155......
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    • U.S. District Court — District of Nebraska
    • 16 Noviembre 1979
    ...775, 113 N.W. 218. Indemnity Ins. Co. v. Lane Contracting Corp., supra, 227 F.Supp. at 151, quoting American Surety Co. of N. Y. v. Smith, Landeryou & Co., 141 Neb. 719, 4 N.W.2d 889 (1942). In light of the facts in this case, it is clear that the doctrine of estoppel is As the Court noted ......
  • Travelers Indem. Co. v. Center Bank
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    • Nebraska Supreme Court
    • 6 Febrero 1979
    ...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 endorsement......

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