Case Title: CLARK-KELLEY LIVESTOCK A. CO. v. Pioneer Bank & T. Co.

Citation: 228 La. 224, 81 So. 2d 869

Docket Number: 

State: louisiana

Court: Louisiana Supreme Court

Date: 1955-05-23T00:00:00Z

Document:
81 So. 2d 869 (1955) 228 La. 224 CLARK-KELLEY LIVESTOCK AUCTION COMPANY v. PIONEER BANK & TRUST COMPANY. No. 42019. Supreme Court of Louisiana. May 23, 1955. Rehearing Denied June 30, 1955. Morgan, Baker & Skeels, Shreveport, for appellant. Cook, Clark & Egan, Shreveport, for appellee. *870 MOISE, Justice. Defendant-appellant, Pioneer Bank & Trust Company, has appealed from a judgment of the district court which allowed plaintiff-appellee, Clark-Kelley Livestock Auction Company, to recover from the Pioneer Bank & Trust Company the sum of $6,028.41. Plaintiff-appellee has answered the appeal and is asking this Court to award it the full amount of $18,447 sued for. During the period with which this litigation is concerned Clark-Kelley Livestock Auction Company, a partnership composed of P. O. Clark and A. H. Kelley, operated an auction barn in Bossier Parish, Louisiana, and did an extensive business involving a great amount of cash, checks and drafts. Plaintiff-appellee maintained an active checking account with the Pioneer Bank & Trust Company, a Louisiana banking corporation domiciled at Shreveport, Louisiana. Some months its deposits ran as high as $100,000. This suit is the result of the admitted dishonesty of C. L. Daniel, plaintiff's bookkeeper and general manager. By reason of his embezzlement and forgery, he has been convicted and sentenced to the state penitentiary. The money sued for is alleged to be represented by sixteen checks especially endorsed by plaintiff to defendant; by a bank money-order specially endorsed by plaintiff to defendant; a check upon which the endorsement of the payee is alleged to have been forged; two checks upon which the endorsement of the payee is alleged to have been forged and upon which the endorsement of the plaintiff was without authority; and two checks upon which the name of the payee is alleged to have been erased, and the name of another payee substituted neither the original payee nor the substituted payee endorsing the checks. The gravamen of plaintiff's contention is that: Of course, all of these contentions must be considered from the four corners of the record. After that examination, the Court will apply the law. The defendant bank avers that C. L. Daniel was plaintiff's agent; that his power to cash checks was unlimited; that the endorsements placed on the checks were not restricted; that plaintiff was grossly negligent in not checking its accounts as to irregularities; that plaintiff is estopped from recovery because, although it received its cancelled checks and a statement monthly, it did not immediately report irregularities; and that where one of two innocent parties must suffer loss through the fault of another, the burden of the loss should be imposed on him who most contributed to it. Mr. Friedman, the cashier of the defendant bank, testified that he visited plaintiff's place of business in Bossier Parish with the express purpose of finding out the manner in which plaintiff desired the account to be handled; that he talked to Mr. Kelley about the manner in which the account was to be handled, and that Mr. Kelley introduced him to Daniel and told him to discuss that with Daniel since he was their manager and would be in charge of the company's banking business, including deposits, withdrawals, *871 drafts, collections, endorsements, and all matters connected with the account. According to Mr. Friedman's testimony, he ordered a rubber stamp at plaintiff's request and together with the bill turned it over to Daniel. The rubber stamp was in the following words: Defendant's evidence shows that Mr. Clark and Mr. Kelley brought Daniel to the office of the president of the Pioneer Bank & Trust Company, and Daniel's signature was added to the authorization card (Exhibit P-28), which reads as follows: "Name Clark-Kelley Auction Company "Pioneer Bank & Trust Co., Shreveport, La. "Address Rt. No. 2, Benton, La." Mr. E. R. Campbell, President of the defendant bank, testified that 99% of plaintiff's checks were drawn by Mr. Daniel. He stated that Daniel had no restrictions placed on him as to withdrawals. Mr. A. H. Kelley, a partner of the plaintiff company, testified that after he was assured of Daniel's honesty he never supervised his work; that in early 1951 he learned that Daniel had appropriated two checks to his own use and had bought himself an automobile, but that he did not report the theft for several months. He stated that Mr. Daniel was responsible for seeing that petty cash was on hand at all times. He said that he and Mr. Clark took Mr. Daniel to the Pioneer Bank & Trust Company to sign the signature card. He testified that Daniel had authority: He admitted that Mr. Daniel had authority to use discretion when the bank employees called with respect to drafts. The following testimony of Mr. Kelley is pertinent: Mr. P. O. Clark, the other partner of plaintiff company, testified in a vein similar to that of Mr. Kelley. He stated: *872 The following testimony of Mr. Clark is pertinent: The evidence discloses that Daniel was in the defendant bank almost daily in connection with plaintiff's business. He was called upon frequently with respect to honoring a draft which had been drawn on Clark-Kelley Livestock Auction Company, and he also advised the bank how to handle dishonored and returned items. Mr. Harry B. Walker, a certified public accountant employed by plaintiff, testified that he prepared an operating statement, reconciled the bank statements, and prepared tax returns. He stated that Mr. Daniel was the office manager and bookkeeper of Clark-Kelley Livestock Auction Company; that Daniel kept all records, made all deposits, and signed the checks. Mr. Walker kept the general ledger at his office in Bossier City, but Mr. Daniel brought him the information needed. He did not have in his possession plaintiff's stubs, showing the number of checks and the amounts of checks written during each month. Daniels gave him the cancelled checks and he simply reconciled the bank statement by seeing that all deposits tallied with the deposit slips. Mr. Walker stated that Daniel was the man who went to the bank for Clark-Kelley; that once a week Daniel drew a check to replenish his cash; and that on Thursdays Daniel cashed checks at weekly auctions. He further stated that on June 30, 1951, he made a complete audit and discovered Daniel's malfeasance which had been going on for nine monthsSeptember 1950 to May 1951. Defendant proved that beginning September 1949 it returned to plaintiff, monthly, all of its cancelled checks and a statement showing deposits and withdrawals; that this practice was continued during the entire life of the account. A comparison of these cancelled checks and statement with plaintiff's check stubs would have disclosed that Daniel had not deposited the checks herein involved. For example, during the month of September 1950, Exhibits No. 3 and No. 19 were cashed. They were checks issued by Clark-Kelley Livestock *873 Auction Company, paid by the defendant bank in September 1950, and returned to the plaintiff company October 1, 1950. Another check, Exhibit No. 5, was cashed by the bank in October 1950, and returned to plaintiff November 1, 1950. An examination of these cancelled checks returned monthly would have disclosed Daniel's malfeasance from the very beginning. What can be said with respect to the above exhibits can be said with respect to each check herein involved. The record shows that most of these checks were cashed at the paying teller's window and that he placed the bank stamp on the checks showing that they were cashed. According to the testimony of Mr. Walker and Mr. Clark, there was bound to be a variation between the actual condition of the accounts receivable and the total thereof as given Mr. Walker by Daniel. Had the accounts receivable been compared at any time with the figures given to Mr. Walker, Daniel would have been exposed. No such comparison was made. Whose duty was it to make such a comparison? Until Daniel actually listed the money on a deposit slip, there was no record of Clark-Kelley Livestock Auction Company ever having received it. Until it went on a deposit slip or was entered in the cash book, there was nothing for Walker, Clark or Kelley to check against. A simple audit, independent of Daniel, would have disclosed his dishonesty, but these partners permitted themselves to be at his mercy as to the state of accounts receivable. Defendant proved that C. L. Daniel handled the entire banking account of plaintiff; that he signed the company's checks, made deposits and withdrawals, endorsed checks for plaintiff, O.K'd drafts which were drawn on plaintiff, cashed plaintiff's checks on plaintiff's account for needed money or petty cash in the operation of plaintiff's business; and that since there was never any objection by plaintiff, defendant was led to believe that Daniel was fully authorized to handle plaintiff's account. A reading of the testimony of Mr. Clark and Mr. Kelley clearly shows that their conduct was such as to lead the bank to believe that Daniel was empowered to handle their bank account. In the case of Airey & Company v. Okolona Savings Institution, 33 La.Ann. 1346, this Court held: In Herbert v. Langhoff, 185 La. 105, 168 So. 508, 510, this Court held: Plaintiff is estopped to deny the authority of Daniel. Both members of the partnership were experienced business men, and had they exercised ordinary precautions they could have avoided a situation such as this. Can anyone recover because of a condition he was instrumental in producing? "A well-established rule of equity is applicable here, i. e., that `where one of two innocent parties must suffer loss through the fraud of another, the burden of the loss should be imposed on him who most contributed to it.' Thompson v. Hibernia Bank & Trust Co., 148 La. 57, 58, 86 So. 652. See, also Haley v. Woods et al., 163 La. 911, 113 So. 144; Brooks-Scanlon Co. v. Illinois Central Railroad Co., 5 Cir., 257 F. 235; Boatsman v. Stockmen's National Bank, 56 Colo. 495, 138 P. 764, 50 L.R.A.,N.S., 107; Crippen, Lawrence & Co. v. American National Bank, 51 Mo.App. 508; Stout v. Benoist, 39 Mo. 277, 281, 90 Am.Dec. 466. (Italics ours.) The above doctrine was further enunciated in the case of Whittington Co. v. Louisiana Paper Co., Ltd., Inc., 224 La. 357, 69 So. 2d 372, 375, as follows: We are of the opinion that, under the facts and circumstances of this case, one of the equitable rules is applicable here, and that is, "* * * where one of two innocent parties must suffer loss through the fraud of another, the burden of the loss should be imposed on him who most contributed to it." Thompson v. Hibernia Bank & Trust Company, 148 La. 57, 86 So. 652; Haley v. Woods, 163 La. 911, 113 So. 144; Young v. Gretna Trust & Savings Bank, 184 La. 872, 168 So. 85. Therefore, the partnership is estopped from claiming reimbursement from the Pioneer Bank & Trust Company. The conclusion which we have reached renders it unnecessary to consider other questions presented. For the reasons assigned, the judgment of the lower court is reversed and set aside, and plaintiff's suit is dismissed at its cost.