Opinion
Rehearing Denied Sept. 8, 1954.
Hearing Granted Oct. 13, 1954.
[273 P.2d 548] Jesse A. Hamilton, Los Angeles, for appellant.
Iverson & Hogoboom, by Paul E. Iverson, Los Angeles, for respondent.
MOSK, Justice pro tem.
Plaintiff-appellant brought this action against respondent alleging that the bank improperly paid out funds of appellant on checks which had been surreptitiously raised by a faithless employee of appellant, after the bona fide signature of the company's authorized officer had been placed thereon. Sought in this suit were damages for the funds claimed to have been erroneously charged against the account of appellant, and substantial damages for injury to credit and reputation suffered when subsequent valid checks to business firms were dishonored because of insufficient funds remaining on deposit after the altered checks were cashed. Upon completion of testimony, the trial court directed the jury to return a verdict for respondent, from which order this appeal has been taken.
The rules regarding directed verdicts are well settled. In order to justify the submission of any question of fact to a jury, the proof must be sufficient to raise more than a mere conjecture or surmise that the fact is as alleged. It must be such that a rational mind reasonably can draw from it the conclusion that the fact exists, and when the evidence is not sufficient to draw such inference, the court [273 P.2d 549] should refuse to submit the question to the jury. Bardin v. Case, 99 Cal.App.2d 137, 142, 221 P.2d 292; In re Calkins, 112 Cal. 296, 306, 44 P. 577. If the testimony shows as a matter of law that no reasonable conclusion is legally deducible from the evidence, other than that which compels a directed verdict it is the duty of the trial judge to make the order directing the verdict. Galiano v. Pacific Gas & Elec. Co., 20 Cal.App.2d 534, 538, 67 P.2d 388. On the other hand, in reviewing the trial court's action, it is the responsibility of the appellate court to ascertain if there is any testimony which reasonably would support a verdict in favor of the opposing party, and if there is, then the directed verdict cannot be upheld. With the foregoing in mind, we shall review the evidence.
The appellant corporation employed one Curtis Goodnight, Jr., in a clerical capacity and as a bookkeeper. He worked for a brief period in 1950, thereafter was called into military service and subsequently was re-employed on January 18, 1952. On neither his original nor his later employment were character references verified. Nevertheless he was placed in charge of drawing checks for the appellant company and kept the bank account in balance. Apparently almost immediately after his re-employment Goodnight embarked on the course of conduct which resulted in this law suit. The first check issued for a raised amount was signed on January 25, 1952.
All of the checks involved in this suit and alleged to have been issued for a raised amount were drawn by Goodnight. He drafted the checks, filled in the date, the name of the payee and the amount of the checks in figures only. Leaving blank the line provided in the form of each check for the amount to be written in words, he presented the checks to Everett L. Hagan, manager of the appellant corporation, for signature, and in this condition they were signed by Hagan. After the checks were thus signed Goodnight filled in the remaining blank on each by using a check protectograph machine. Hagan did not watch Goodnight as he operated the protectograph machine, nor did he re-examine the checks after they were completed.
As a result of this practice, Goodnight was alleged to have raised some ten checks by various figures, most of them by $100. Thus, for example, a check that when signed by Hagan was made out for $60 in figures would be raised to $160, by the writing of the protectograph machine, and by subsequent insertion of a '1' before the figures '60'. After the checks were completed several were cashed, presumably by Goodnight, at a liquor store. When presented to the respondent bank for cashing no irregularity was noted on the checks and appellant does not contend that there was anything on the face of any of them which would have aroused any suspicion, or placed the bank on notice that they were not regularly issued. There is no question that all bore the genuine signature of Hagan.
Ordinarily Hagan permitted Goodnight to keep the bank account in balance. However, soon after January 31, 1952, Hagan chanced to observe that there was a charge on the company bank statement of $130, and he recalled no check had been drawn in that amount. He admitted that he did not report this observation to the bank and took no steps to investigate the matter further. He testified he expected that some correction or appropriate cancelled check would appear in the following month's statement from the bank.
The following month, on or about March 5, 1952, another employee of appellant, one John Bell, picked up appellant's bank statement and cancelled checks for the month of February. Bell was not a person authorized to receive the bank statement but since he had been appellant's bank messenger, and had made deposits of cash from time to time, the respondent delivered the statement to him. As of that date only one Lafferty of the appellant corporation was duly authorized to receive bank statements, although the evidence indicated that the statement for the preceding month had been delivered by mail.
The series of misappropriations was discovered by Hagan when a number of [273 P.2d 550] checks issued to various dairies were returned because of insufficient funds remaining in appellant's account. On March 4, 1952, a check in the sum of $34.32, payable to Arden Farms was returned for insufficient funds; on the same day a check in the sum of $250, payable to Western Farms; on March 5, 1952, a check in the sum of $39,36, payable to Arden Farms; on March 5, 1952, a check in the sum of $159.04, payable to Golden State Creamery; on March 5, 1952, a check in the sum of $22.80, payable to Knudsen Creamery; on March 5, 1952, a check in the sum of $10, payable to Carnation Company; on March 6, 1952, a check in the sum of $31, payable to Supreme Dairy Farms, all were returned because of insufficient funds on deposit.
The appellant had Goodnight arrested and instituted criminal proceedings against him for the theft of funds received by the raised checks. Appellant also brought a civil action against Goodnight in the Municipal Court of the City of Los Angeles and obtained judgment against him in the sum of $1,514.94, this admittedly including the same sum claimed against the bank.
At the trial of the instant action respondent introduced into evidence approximately 100 instances in which checks of the appellant were refused payment by respondent when first presented because of lack of sufficient funds on deposit at the time of presentment, these checks being dated between January 17, 1951, and January 31, 1952. These were admitted for the purpose of demonstrating that want of sufficient funds in appellant's account was not an unusual business experience and that consequently the insufficiency of funds caused by Goodnight's defalcations would not have contributed in any appreciable degree to whatever impairment of appellant's credit the evidence disclosed. However, it is doubtful that appellant's evidence on this subject advanced beyond mere conjecture.
The law is well established that a bank which is guilty of negligence in failing to discover an alteration in a check cannot avoid liability on the ground that the depositor was negligent in failing to examine his balanced passbook, statement of account or returned checks. In every instance the preliminary question to be determined is whether the bank was or was not guilty of negligence in making the payments. If it was negligent, then the subsequent negligence of the depositor, his failure to perform his duty in examining his passbook and vouchers with reasonable care and to report to the bank in a reasonable time any errors or mistakes, will constitute no defense. Basch v. Bank of America, 22 Cal.2d 316, 139 P.2d 1. As stated in Sommer v. Bank of Italy, etc. Ass'n, 109 Cal.App. 370, 375, 293 P. 98, 100, '* * * the defense of negligence on the part of a depositor is available to the bank only where it appears the bank itself is free from negligence.'
Appellant relies upon Levin v. Northwestern Nat. Bank, 154 Pa.Super. 94, 35 A.2d 769, at page 770, which states that "The only burden resting upon the plaintiff is proof of the deposit and of the balance remaining due after deducting payments admittedly authorized by plaintiff." But the foregoing was mere dictum, for the judgment there was reversed because the trial judge in charging the jury placed the burden of proof of forgery upon the plaintiff. Similar dictum was recited in Carroll v. South Carolina Nat. Bank, 211 S.C. 406, 45 S.E.2d 729, but there the facts indicated a check was honored after the depositor had given notice to stop payment. Under those circumstances a prima facie case was made out, said the court, and the bank should be required to explain, much in the manner of the res ipsa loquitur doctrine, why it disregarded the depositor's specific order to decline payment. Whether dictum or rule, Levin, contrary to the appellant's contention, does not prevail in California. We follow Basch, and require the procedure quoted therein, 22 Cal.2d at page 322, 139 P.2d at page 5: '* * * in every case * * * the preliminary question to be determined is whether the bank was or was not guilty of negligence in making the payments.'
Precisely what negligence was shown here? Appellant calls our attention to only one purported act: that the bank was negligent in giving the cancelled [273 P.2d 551] checks to John Bell, who was unauthorized to receive them. All of the raised checks were issued by appellant, paid by respondent, and charged to appellant's account between January 25, 1952, and February 27, 1952. The cancelled checks covering the period from February 1, to February 29, 1952, were delivered to Bell on March 5, 1952, seven days after the last check was honored and charged to appellant's account. It seems clear that the act of delivery of the cancelled checks by the most tenuous construction could not be considered the proximate cause of appellant's damage, for the loss by then had been sustained.
Cases cited by appellant involved forgery of signature, Sommer v. Bank of Italy, supra; Basch v. Bank of America, supra; Frankini v. Bank of America, 31 Cal.App.2d 666, 88 P.2d 790, and should have been detected by an alert bank teller. The checks involved here were raised by an employee who had authority to fill in the amount of the check in words with a mechanical device. The words written in the body of a check are controlling and determine the amount for which it is to be negotiable Civil Code, § 3098(1); Payne v. Commercial Nat. Bank, 177 Cal. 68, 169 P. 1007, L.R.A.1918C, 328; Michie Banks and Banking, Vol. 5A, p. 431.
'It is the rule', said the court in Rancho San Carlos v. Bank of Italy, etc., 123 Cal.App. 291, 293, 11 P.2d 424, 425, 'that, if one signs an instrument containing blanks, he must intend it to be filled in by the person to whom it is delivered (Cassetta v. Baima, 106 Cal.App. 196, 288 P. 830); and, where a depositor signs checks in blank and delivers the same to his agent, who fraudulently fills in the blanks and negotiates the checks, the drawee bank which pays the same without notice of the fraud is not liable to the drawer, since the negligence of the latter is the proximate cause of the loss (Otis Elevator Co. v. First Nat. Bank, 163 Cal. 31, 124 P. 704, 41 L.R.A., N.S., 529; Edelen v. Oakland Bank of Savings, 39 Cal.App. 302, 178 P. 737).'
There is a comparable factual similarity between the instant case and Otis Elevator Co., in which a trusted employee altered a check and appropriated its proceeds. There, too, nothing about the instrument in question would awaken any suspicion in the bank, no alteration being apparent on the face of the check. Since preparation of checks was the employee's duty, the court held, 163 Cal. at page 40, 124 P. at page 708, 'it was presented * * * under the implied guaranty of [the employers] that, as their agent for the purpose of presenting such checks and obtaining payment, [the employee] was faithful and honest. * * * Whether in doing so the agent has been guilty of a breach of faith with his principal, or has committed a crime, is of no controlling moment as affecting the responsibility of the principal to third persons injured thereby. It is enough to fix the responsibility of the principal in behalf of an innocent third party if the agent, though acting criminally, was nevertheless in perpetrating a fraud thereby on said third party acting within the course of his employment.'
It seems clear from the foregoing facts and law that the respondent was not guilty of any negligence that proximately caused loss, if any, to the appellant. It may be said parenthetically that appellant did not establish any compensable loss other than the face value of the checks. As to the latter sums, there is still another compelling reason to deny recovery.
Prior to the institution of the litigation involved herein, appellant filed suit in the Municipal Court of Los Angeles against Curtis Goodnight, Jr., and obtained a judgment against him in the sum of $1,514.94, for money had and received, based on the issuance of the checks in the increased amount. A bank depositor who claims that a bank has paid out his money to a person not entitled to receive it has an election to sue either the bank or the person who received the money but if he chooses to sue the latter, he thereby precludes himself from suing the bank. Hensley-Johnson Motors v. Citizens Nat. Bank, 122 Cal.App.2d 22, 27, 264 P.2d 973. An exception, of course, would exist in the event there was a conspiracy, collusion or joint wrongdoing [273 P.2d 552] by or between the bank and the third person.
Although no election of remedies was found to have been made in Gaines Bros. Co. v. Fourth Nat. Bank of Tulsa, 129 Okl. 59, 133 P.2d 742, at page 744, 144 A.L.R. 1434, the comments of the court are helpful. 'The doctrine of election of remedies is that the choice of one of two or more available, but inconsistent, remedies bars recourse to the other. This doctrine, though often criticized as harsh and not a favorite of equity, is widely recognized.', said the court. 'The essential elements of the doctrine are: (a) The existence of two or more remedies; (b) inconsistency between the remedies; and (c) choice of one of the remedies.' In the depositor versus bank situation, continued the court, 133 P.2d at page 745, 'The reason advanced in support of the holding seems to be that a depositor, or one in a similar relation, may not proceed against the person to whom he claims his money was wrongfully paid, on the theory that such person has obtained his money and holds it for his use under an implied promise to pay it over to him as the rightful owner, and pursue his remedy to a judgment against such person and on failure to collect come back and sue the bank on the theory that his money deposited with the bank was not paid out and therefore remains to his credit in the bank.
'That is, he may not say to the one 'you hold my money in your possession which you are in duty bound to pay over to me,' and at the same time say to the bank, 'you still hold my money and are in duty bound to pay it over.' The two remedies are said to be inconsistent, and therefore an election to pursue the one bars pursuit of the other.'
The evidence does not disclose whether the judgment against Goodnight has been satisfied. That is not material, however, for it is the election of remedies and not the ultimate favorable termination that is significant. In No Dust O Co. v. Home Trust Co., Mo.App., 46 S.W.2d 203, the depositor accepted a note and mortgage from the dishonest employee. The court held, 46 S.W.2d at page 207, that by so doing 'it ratified his act in cashing the checks in question at the defendant bank', and even if the note and mortgage were in fact insufficient to satisfy the claim this, 46 S.W.2d at page 208, 'was a matter that plaintiff should have looked into at the time it accepted them as payment'.
There can be no question that appellant elected his remedy when he obtained judgment against Goodnight in the Municipal Court. He is not entitled to a second day in court on the same claim, even though a different defendant is brought before the bar.
Appellant contends that the trial court erroneously refused to admit in evidence a letter under date of December 11, 1949, from appellant to respondent. This letter, argues appellant in its brief, informed the bank that in no instance would a payroll check exceed the sum of $85. If so, that could be significant in determining liability, for many of the raised checks were in excess of that sum. An examination of the offered instrument, however, indicates no instruction to the bank, nor any legally binding commitment to limit individual withdrawals by check. The figure of $85 was contained merely as a clause in a statement referring to notifying appellant in the event of an overdrawn account. In the absence of a specific instruction to limit check cashing to a maximum sum, the bank could incur a legal liability if it refused to honor a check which exceeded that sum and if its refusal resulted in damage to the payee or holder in due course. Allen v. Bank of America, 58 Cal.App.2d 124, 136 P.2d 345; 8 Cal.Jur. (2d) 51; Magness v. Equitable Trust Co., 176 Md. 528, 6 A.2d 241, 126 A.L.R. 206. Since the rejected letter would have added nothing of substance to plaintiff's case, the trial court did not commit error in sustaining an objection to its admissibility.
We conclude that appellant has failed to establish any negligence by respondent and therefore the court was justified in directing the jury to return a verdict for respondent.
The order is affirmed.
DORAN, Acting P. J., and DRAPEAU, J., concur.