Court Opinion

ID: 9661548
Source: CourtListenerOpinion
Date Created: 2023-08-23 22:42:28.871369+00
Date Added: 2024-06-11T18:14:30.037245
License: Public Domain

LESTER, Judge,
dissenting.
I must commend my colleagues upon their well-written opinion, but I feel constrained to differ with them on two points, namely, the apparent authority of William B. Young and the negligence of Publishers acting through its principal owner and chief executive officer, Frank E. Simon.
The doctrine of apparent authority as set forth in Restatement (Second) of Agency § 27 and 49 (1958) as approved in Union Central Life Ins. Co. v. Glasscock, 270 Ky. 750, 110 S.W.2d 681, 685 (1937), is nothing new or novel to this jurisdiction for it is discussed in Hurst Home Ins. Co. v. Ledford, 207 Ky. 212, 268 S.W. 1090, 1091 (1925), and even earlier cases cited therein. It is unnecessary to set forth the principle for the able counsel involved in this litigation, but I do believe that several of the comments or portions thereof are particularly applicable here. In comment a (analogy to authority) under § 27, Creation of Apparent Authority: General Rule, is noted the following:
So, too, a person who permits another to do an act in such a way as to establish in a community a reputation for having authority to act, either by directing the agent so to represent, or by directing him to act and doing nothing to prevent the spread of such information by the agent or by others, creates apparent authority with respect to those who learn of the reputation,
while comment d contains:
d. Third persons who know of agent’s employment but not of his authority. The position of those who do not know of the prior conduct or reputation of the agent is to be distinguished from those who know of this but are not familiar with the extent of the powers of the kind of agent he appears to be. As to these the agent has apparent authority. Thus, a manager has apparent authority to do those things which managers in that business at that time and place customarily do, as to persons who know that he is a manager, although they do not know what powers managers in such a business have. In such cases the manifestation is interpreted as meaning that the agent has the powers which such managers have, and those dealing with him are entitled to rely upon this as to the extent of the agent’s authority, even though they do not know the powers of such managers. This result is consistent with the interpretation of authority.
Under § 49, we note comment g to the effect:
*295Where agent acts for his own purposes. As stated in Section 39, an agent is authorized to act only for his principal’s benefit. However, the fact that an agent secretly intends to act for a purpose of his own or otherwise to disobey the principal does not prevent the existence of a power to bind the principal to one who relies upon the facts which indicate apparent authority, unless the one dealing with the agent has notice of such intent. See § 165.
Treating an agent with apparent authority as one who is a “disclosed agent,” I refer to § 165, dealing with an agent acting for an improper purpose and find comment d thereunder to be significant in this appeal. That comment teaches:
Checks. Where an agent, having authority to draw or to endorse checks in his principal’s business, makes or endorses a check payable to himself, one taking such check for a private purpose of the agent is put upon inquiry as to a possible breach of trust by the agent. However, the bank upon which such check is drawn is not, from the fact that a check is drawn payable to the agent’s own order, put upon inquiry; nor is a bank which accepts for deposit to the private account of the agent a check endorsed by such agent put upon inquiry either as to the authority of the agent to draw checks for his own purposes or to deposit such checks to his own account, or as to the intent of the agent to misappropriate the funds.
It should be recalled that the U.C.C. (KRS 355.1-101) does not displace the law of principal and agent, KRS 355.1-103, so therefore, the Restatement (Second) of Agency §§ 27 and 49 remain applicable in this jurisdiction. With this in mind, not only did Young, as characterized by the majority, in his capacity of
... “Chief Clerk”, “office manager” and “trusted employee” ...
deposit checks to Publishers’ accounts, cash small checks requiring endorsement by him, insuring balances were maintained, but he also appeared at the bank in the company of Simon who freely admitted that the personnel of the Bullitt County Bank had been given the impression that Young was clothed with the authority, whether limited or otherwise, to transact appellee’s financial business. Therefore, I would conclude that based on the principles of agency, appellant should prevail.
I now turn to the matter of Publishers’ and Simon’s negligence. At oral argument, it was represented to this court by appellee that Simon was an astute businessman who paid close attention to the financial affairs of his company. The record belies that concept. Recalling that the management of the company was lodged in Simon, Haberman, and Gerhard who made up the entire board of directors, it is at once perceivable that this was a small closely knit corporate enterprise. These three individuals lodged the conduct of the daily affairs in Young. It was Simon’s long-standing custom to presign checks and either one of the other two officers “would co-sign as a matter of routine.” In my opinion, this was negligence in and of itself. Be that as it may, it was that habit or conduct that put Young in a position for a period of four years and three months to divert funds from the corporation to himself in varying amounts (up to $6,000) for a total of $184,000.00. That fact coupled with consistent audits by one of the most efficient and reputable accounting firms in the nation leads me to believe that there was significant negligence imputed to Publishers. The majority absolves appellee of any negligence primarily upon inferences to be drawn from several sections of the U.C.C. as corrolated in Bank of Southern Maryland v. Robertson’s Crab House, Inc., 39 Md.App. 707, 389 A.2d 388, 24 U.C.C.Rep. 702 (1978), but in that opinion Judge Melvin pointed out that:
The officers and employees of the Bank of Southern Maryland were aware that Hanson had no authority to sign checks on behalf of Robertson’s.
and
In the instant case, it is clear that Hanson had no actual or apparent authority *296to receive the proceeds of the eleven checks here involved.
Notwithstanding Fidelity & Casualty Co. of New York v. Hellenic Bank & Trust Co., 181 Misc. 40, 45 N.Y.S.2d 43 (City Ct. of N.Y.1943) to the contrary, I would conclude that Young had been given the apparent authority and thus apply the principles embodied in Cairo Cooperative Exchange v. First National Bank of Cunningham, 4 Kan.App.2d 458, 608 P.2d 1370 (1980), and reverse the decision of the trial court.
One other point I consider worth of comment. The majority distinguishes authorities cited by the appellant for its parties in that they “all involve altered or improperly signed checks and are therefore inapplicable to the controversy at hand.” True enough, there is no alteration of a signature or a forgery in those precise concepts in the case at bar. I would extend KRS 355.4-406 to include such an act as Young committed because this extends beyond the alteration of an instrument for it is an alteration of an account by depletion. The Kentucky Commentary following the statute cited above indicates that the principle of at least subsection (5) might be extended “to other types of claims of customers against banks and defenses to these claims,
Without elaborating, I think there is merit in appellant’s plea of laches.
The purpose of my comments is to point out, in the event of appeal to our court of last resort, the inconsistencies of the law pertinent hereto and the need for an ultimate solution.
For the foregoing reasons, I respectfully dissent.